Consumer prices moved higher in December

January 11, 2024

The Consumer Price Index (CPI) rose 0.3% in December, a disappointment relative to market expectations which were for a 0.2% increase. The CPI accelerated to 3.4% from a year ago versus 3.1% in November.

Energy prices increased 0.4% after sharp declines in the prior two months. Prices at the gas pump rose 0.2%. A 1.3% jump in electricity prices contributed to the increase in December energy costs.

Food prices rose 0.2%, the same increase as in November. Although consumers did find lower prices for protein such as turkey and fish at the supermarket, egg prices surged 8.9% due to another bout of the avian flu, which impacted egg stocks. Price increases at restaurants slowed to 0.3% from 0.4% in November.

Core CPI, which excludes food and energy prices, rose 0.3% in December, in line with the consensus. The core CPI cooled to 3.9% from a year ago, down from 4.0% in November. Market participants were anticipating a sharper cooling to 3.8%.

A pickup in shelter costs, higher vehicle prices and more expensive travel kept core inflation from cooling more. Shelter costs rose 0.5% in December, an acceleration from a 0.4% rise in November and 0.3% in October. Rents and homeowners' equivalent advanced by 0.4% and 0.5%, respectively. Holiday travel was the busiest ever, which was reflected in higher prices. Airfares rose 1% while hotel room rates bounced back in December, rising 0.4%, after negative readings during the prior two months.

New vehicle prices rose 0.3% in December after declining 0.1% in November. Used vehicle prices rose 0.5% in December, a deceleration from a 1.6% rise in November. Consumers may find near-term relief on pre-owned vehicle prices in the new year, particularly for electric vehicles (EV). A major rental car company announced that it began sales of 20,000 EVs last month due to weak customer demand. Blame it on range anxiety and incompatible charging stations. This is certainly not turning out to be the case of,"Build it and they will come." At the least, the weaker state of demand affords time for the EV supply chain to catch up by offering a more robust charging network and expanded range for models than it currently provides.

One area related to motor vehicles where consumers may not find relief is the cost of insurance, which has become stickier. Motor vehicle insurance rose 1.5% in December after rising 1% in November. On an annual basis, insurance costs rose 20.3%, the largest move up since December 1976. Medical care services rose 0.7% in December, up from a 0.6% increase in November and the largest monthly increase in 2023. Medical care is also proving to be stickier given outright declines in the first half of last year.

The core services measure of CPI, which strips out goods and shelter costs, rose 0.4% in December, the same as in November. This measure of inflation, also know as the super core services index, rose 3.9% from a year ago, the same result as in November. More worrisome is that the six-month annualized change jumped to 4.6% in December from 3.7% in November and 3.3% in October.