U.S. core consumer prices drop for first time in 27 years
After including fuel and food, which are more erratic, the U.S. Dept. of Labor's Consumer Price Index (CPI) for All Urban Consumers still went up only a modest seasonally-adjusted 0.2%. This translates into a yearly rate of 2.6%, not adjusted for seasonality.To calculate the core consumer price, food and energy are not included. By removing these volatile consumer expenses, the numbers provide a better comparison over time of the consumer's buying power.
In January, the food index was up 0.2%. The energy index was up 2.8%, which continued a nine-month string of climbing prices. Unlike the core consumer prices, the energy index has been troublesome in the past 12 months, up 19.1% in that period.
You'll be most likely to experience core price stability if you bought a new car, house or airline ticket, while you might be thinking whaaaaaa? if you had to pay medical bills or buy a used car, two sectors that weren't price-dormant. Used car prices have climbed steadily since last summer, thanks in part to Cash for Clunkers, and during the past 12 months, medical care costs have crept up 3.5%.
Despite the modest inflation figures, the Fed just raised its discount rate by 0.25%. The stock market isn't digging the new rate, apparently, if the tumble in foreign stock exchanges afterward is any indication. The wisdom of short-term sacrifice for long-term stability isn't strongly reflected in the stock market.
What does this mean to you? The good news -- stable prices and a strong dollar. The bad news -- if you counted on inflation to reduce the burden of a long-term loan such as a 30-year mortgage, your prospects are not looking so good at the moment.
And energy costs could be the cement bucket in which our feet are trapped.