CPI inflation rose 0.5% in December; without housing we are looking at 2.2% inflation YOY

The CPI in December jumped 0.5% (an annualized 6%), following a modest 0.1% rise the month before.  Excluding food and energy, CPI inflation came in at 0.1%, so if you do not eat or drive, your inflation was negligible. 

The energy index increased in December. The gasoline index rose sharply and accounted for about 80 percent of the all items seasonally adjusted increase. The household energy index, which declined in November, increased as well. The food index increased slightly in December, with the fruits and vegetables index rising notably.

As in recent months, shelter helped keep the core rate soft. The index for shelter rose 0.1% for the third month in a row. If you take out shelter, the headline number raised 0.8% in the month and 2.2% year over year. 

Essentially, headline inflation is seeing upward pressure from higher oil prices. While there has been no consistent upward pattern for food prices, there could be higher numbers in coming months from stronger transportation and production costs. Commodities prices have been notably higher recently.

But core inflation is soft due to weak housing and heavy competition among retailers. In coming months, the Fed likely is going to have to address this issue of two track inflation between headline and core numbers.


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