Mark Vitner, Senior Economist

mark.vitner@wachovia.com ● 704-383-5635

February 20, 2009

Consumer Prices Bounced Back in January

The Consumer Price Index rose 0.3 percent in January, marking the first meaningful gain since July. Energy prices
rebounded 1.7 percent, as gasoline prices rose 6.0 percent. Prices excluding food and energy items rose 0.2 percent.
Rent and owners equivalent rent both rose 0.3 percent, a result clearly at odds with the huge oversupply of housing.
Prices Rebounded Slightly in January U.S. Consumer Price Index
Consumer prices rose slightly more than expected in January, with the 1.5%
Month-over-Month Percent Change
1.5%
headline CPI climbing 0.3 percent and the core index rising 0.2 percent.
1.0% 1.0%
With the gains, the overall CPI was essentially unchanged on a year-to-
year basis and the core CPI was up just 1.7 percent. 0.5% 0.5%

January can be a tricky month to measure price changes. The BLS reruns
0.0% 0.0%
the seasonal adjustment factors to the previously published data just prior
to the report’s release. The revised data show the overall price index -0.5% -0.5%

falling a slightly larger 0.8 percent in December and showed 0.1 percent
-1.0% -1.0%
larger gains in the core index in both October and November, as well as
back in February. The result is that year-to-year readings were slightly -1.5% -1.5%

higher than expected. Of course a little more inflation right now is not a CPI: Jan @ 0.3%
-2.0% -2.0%
big concern. Many Fed leaders still see the near-term risks of deflation 00 02 04 06 08
being greater than the risks of inflation.
Another complicating factor with the January inflation data is that many U.S. "Core" Consumer Price Index
Both Series are 3-Month Moving Averages
firms post price increases in January simply to see how well they will stick 5%
Core CPI 3-Month Annual Rate: Jan @ 0.6%
5%

in coming months. This may be what is happening in residential rents. Core CPI Year-over-Year Percent Change: Jan @ 1.8%

Rent of primary residence increased 0.3 percent in January and is up at a 4% 4%

3.1 percent annual rate over the past three months. Housing is in obvious
over-supply. The Census Bureau’s quarterly survey shows rental vacancy 3% 3%

rates at 10.1 percent nationwide. High and rising vacancy rates, along with
growing competition from single-family homes and condominiums now 2% 2%
being put out for rent, should be driving rents lower.
January’s rise in rent of primary residence may be more statistical in nature 1% 1%

than real. Many rental agreements are structured such that utilities are
included in monthly rental payments. Since rents are usually fixed for one 0% 0%
year terms, a drop in the costs of utilities actually results in a rise in the 92 94 96 98 00 02 04 06 08

computed rent. This seems to have been the case in January, when prices
Shelter, OER & Rent Costs
for fuel oil and other fuels declined 2.7 percent and prices for gas and Year-over-Year Percent Change
7% 7%
electricity declined 0.8 percent. Overall housing costs were unchanged in Shelter: Jan @ 1.9%
Rent: Jan @ 3.4%
January, reflecting the drop in household energy prices and falling prices 6%
OER: Jan @ 2.2%
6%
for hotel rooms. Prices for lodging away from home tumbled 1.1 percent in
January and are now down 4.7 percent over the past year. Hotels have 5% 5%
seen steady erosion in both business and leisure travel and conditions are
expected to worsen. 4% 4%

Many other categories saw unusually large price gains in January, which
3% 3%
we think are clearly unsustainable. Prices for men’s and boy’s apparel
jumped 1.6 percent but remain up just 0.1 percent year-to-year. Prices for 2% 2%
new vehicles also rose 0.2 percent, but dealers are still searching for car
buyers. We expect the inflation figures to post declines in coming months 1% 1%

as retailers and car dealers work to reduce inventories. 88 90 92 94 96 98 00 02 04 06 08

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