December 2014 Consumer and Producer Price Indices (incl. Forest Products)

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) declined 0.4% (in line with expectations) in December. The gasoline index continued to fall sharply, declining 9.4% and leading to the decrease in the seasonally adjusted all-items index. The fuel oil index also fell sharply, and the energy index posted its largest one-month decline since December 2008, although the indexes for natural gas and for electricity both increased. The food index, in contrast, rose 0.3%, its largest increase since September. 

The index for all items less food and energy was unchanged in December, following a 0.2% increase in October and a 0.1% rise in November. This was only the second time since 2010 that it did not increase. The shelter index continued to rise, and the index for medical care posted its largest increase since August 2013. However, these increases were offset by declines in a broad array of indexes including apparel, airline fares, used cars and trucks, household furnishings and operations, and new vehicles.

The all-items index increased 0.8% over the last 12 months. This is notably lower than the 1.3% change for the 12 months ending November. The energy index has declined 10.6% over the span. In contrast, the 3.4% increase in the food index is its largest 12-month increase since February 2012. The index for all items less food and energy has increased 1.6% over the last 12 months, its smallest 12-month change since the 12 months ending February 2014.

The seasonally adjusted Producer Price Index for final demand (PPI) fell 0.3% in December (slightly less than expectations of -0.4%). Final demand prices decreased 0.2% in November and advanced 0.2% in October. On an unadjusted basis, the index for final demand increased 1.1% in 2014 after rising 1.2% in 2013.

In December, the 0.3% decline in the final demand index can be traced to a 1.2% drop in prices for final demand goods. In contrast, the index for final demand services moved up 0.2%.

Final demand goods: The index for final demand goods dropped 1.2% in December, the sixth consecutive decrease. Leading the December decline (i.e., 70% of which was attributable to prices for gasoline), prices for final demand energy fell 6.6%. The index for final demand foods moved down 0.4%. Conversely, prices for final demand goods less foods and energy increased 0.2%.

Final demand services: The index for final demand services increased 0.2% in December after inching up 0.1% in November. Over three-fourths of the December rise can be traced to margins for final demand trade services, which climbed 0.6%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing advanced 0.2%. Conversely, the index for final demand transportation and warehousing services edged down 0.1%. 

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All of the price indices we track fell in December (relative to November). However, only Intermediate Materials was lower compared to a year earlier. 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.