U.S. November all-items inflation eased, while the “core” rate crept higher

12/19/2011 by Alex Carrick

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The U.S. Consumer Price Index for All Urban Consumers (CPI-U) remained flat in November relative to October, according to the Bureau of Labor Statistics.

On a year-over-year basis, the price change was +3.4%. That was a slight decrease from +3.5% the month before.

In September, the inflation rate reached a post-recession high of +3.9%. At that time, the energy sub-component index was nearly 20% higher than the year before.

It has now dropped back to +12.4%.

Energy prices on a year-over-year basis have moderated for several reasons, including the end to hostilities in Libya and reduced expectations for growth in Europe and China.

Gasoline prices were nearly +40% year over year in the summer. That rate of change has been cut in half.

The price at the pump has fallen in four of the past seven months, which is good news for both consumers and corporations.  

The easing in the price of gasoline will make it easier for individuals and families to stretch their pay checks. They’ll also be able to better diversify their purchases. 

It’s been demonstrated that higher gasoline prices have a significant dampening effect on the overall economy.

Driving one’s car to work is often an integral part of maintaining employment. Therefore, higher prices at the pump can squeeze out purchases in other areas.

Even with gasoline prices pulling back, there continue to be other significant price pressures on family budgets. The price of food for consumption at home has risen 5.9% year over year.

While a generalized easing in commodity prices may be underway, there is one category where no significant decline is expected – agricultural products.

The “core” rate of inflation, which omits volatile energy and food components, was +2.2% in the latest month. While this measure is still under wraps, it has been trending upward throughout the year.

During most of 2010, the core rate of inflation was less than +1.0%.

One line item in the inflation report will be of particular interest to tech-savvy consumers. The “personal computers and peripheral equipment” sub-index declined 12.2% year over year.

The price advantage in high-tech gear was undoubtedly helpful in generating record sales levels on Black Friday and Cyber Monday.

The latest inflation report is one more shiny bauble to place in a basket filling with better news items on the U.S. economy. It’s in keeping with improving employment prospects and strong retail sales.

It also helps smooth the path being taken by the Federal Reserve. The Fed intends to keep its benchmark interest rate at a record-low near 0.00% into mid-2013.

The evidence indicates no imminent worries about the inflationary impacts of such a stance.

How are American businesses reacting to the improvement in their circumstances relative to competitors elsewhere in the world? 

The debt crisis in Europe is having an interesting side effect. The declining value of the Euro and weaker stock prices – due to the continent’s poorer growth outlook – are serving up takeover and acquisition opportunities.

There’s little doubt about the high quality of some of the largest and best managed firms in Europe. This explains the interest from American and Asian firms in expanding their reach.

There are two primary targets, companies with outstanding technological resources and patents, plus firms that have gained entry and established good relations with emerging nations.

In Canada, the construction outlook has become cloudier due to two circumstances.

Some companies serving the resource sector are scaling back their revenue estimates.

Finning International Inc. supplies the mining and construction industries with earthmoving equipment made by Caterpillar Inc. Finning is now projecting its sales growth will slow to +5% in 2012 from +26% in 2011.

There’s also the matter of government spending. Ottawa’s infrastructure stimulus package has been winding down this year. There’s likely to be additional austerity in some regions.

Ontario has been put on notice by Moody’s Investor Service. If the province does not make a firmer commitment to deficit reduction in the next budget, its Aa1 credit rating will be in jeopardy.

Queen’s Park previously suffered a downgrade in 2009, when the auto sector was in such bad shape. The province’s deficit is currently $16 billion and the need for accumulated external funding has almost doubled to $190 billion over the past eight years.  

U.S. inflation: all items (CPI-U) vs all items less food and energy
(not seasonally adjusted)
U.S. inflation: all items (CPI-U) vs all items less food and energy
In the U.S., the change in the energy sub-component index was +12.4% year over year in November 2011.

The U.S. figure (CPI-U) is the All Items Consumer Price Index for All Urban Consumers.
Data source: U.S. Bureau of Labor Statistics (Department of Labor).
Chart: Reed Construction Data - CanaData.

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