Consumer Price Index Surprise: Everyone Has Jobs and Prices on Many Things Are Falling

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U.S. consumer prices barely rose in December despite record low unemployment, indicating that inflationary pressures remain very muted.

The Labor Department’s Consumer price index increased 0.2 percent in the last month of 2019, a slowing of the pace of prices from the 0.3 percent rise in November and the 0.4 percent rise in October. The December figure was below the consensus forecast of a 0.3 percent gain.

Core CPI, which excludes the volatile categories of food and energy, rose by just 0.1 percent.

In the 12 months through December, the CPI rose 2.3 percent. There was no change to either the annual figure when food and energy are excluded.

That likely means that inflation as measured by the Federal Reserve’s preferred metric, the personal consumption expenditure index minus food and energy, is running below the Fed’s two percent target. Core PCE inflation tends to run a half a percentage point below CPI.

Last week’s employment report showed that wages had increased by less than three percent on a 12-month basis in December despite unemployment holding at 3.5 percent, a 50-year low. This suggests that the U.S. labor market still has slack and undermines arguments from corporate lobbyists in Washington, D.C. that businesses need higher levels of immigration to fill jobs.

Many items that attract a lot of attention from consumers are down in price. Televisions are down more than 20 percent compared with a year ago. Apparel prices have fallen 1.2 percent, with women’s clothing prices down 2.2 percent. Major appliances are down 7 percent. Prices of fresh fruits and vegetables are down 1.8 percent.

The price of cars and trucks are up just one-tenth of a percentage point. Even drug price inflation is low, with prices rising just 3 percent.



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