November 2015 CPI Core Inflation Is Now At The Fed Target Rate Of 2.0%

by Doug Short and Steven Hansen

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 0.5% – almost no inflation. The year-over-year core inflation (excludes energy and food) rate grew 0.1% to 2.0 %, and now is at the target set by the Federal Reserve. Does this green light movement of the federal funds rate by the FOMC?

The market expected (from Bloomberg):

month over month change Consensus Range Consensus Actual CPI-U -0.1 % to 0.2 % +0.0 % +0.0 % CPI-U less food and energy 0.1 % to 0.2 % +0.2 % +0.2 %

As a generalization – inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy – and cannot be used as a economic indicator.

There were few major influences on this month’s CPI. Energy was mixed.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.5 percent before seasonal adjustment.

The indexes for energy and food declined in November, offsetting an increase in the index for all items less food and energy and resulting in the seasonally adjusted all items index being unchanged. The energy index fell 1.3 percent, with all of the major component indexes declining except electricity. The food index fell 0.1 percent, as the index for food at home fell 0.3 percent, with five of the six major grocery store food group indexes declining.

The index for all items less food and energy rose 0.2 percent in November, the same increase as in September and October. The indexes for shelter, medical care, airline fares, new vehicles, and tobacco were among the indexes that rose in November. In contrast, the indexes for recreation, apparel, household furnishings and operations, and used cars and trucks all declined.

The all items index rose 0.5 percent over the last 12 months; this is the largest 12 month increase since the 12-month period ending December 2014. The food index rose 1.3 percent over the span, while the energy index declined 14.7 percent. The index for all items less food and energy rose 2.0 percent, its largest 12-month increase since the 12 months ending May 2014.