February Brings Energy-Price Relief

Chart 1. Trends in everyday prices (EPI) vs. the Consumer Price Index. The EPI decreased 0.7 percent in February after decreasing by 0.1 percent in January.
Table 1. EPI expenditure categories and February 2016 weights

AIER’s Everyday Price Index fell 0.7 percent in February from January and was down 1.6 percent compared with 12 months ago. The EPI measures the change in prices that people see in their everyday purchases, such as groceries, gasoline, utilities, and housekeeping supplies.

The EPI including apparel, a broader measure of everyday prices, posted a more modest decline of 0.4 percent in February and a decrease of 1.4 percent in the past 12 months. Both measures exclude prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and exclude prices that are contractually fixed for prolonged periods (most notably, housing).

The more widely known price index, the Consumer Price Index reported by the Bureau of Labor Statistics, increased 0.1 percent in February (prior to seasonal adjustment) and 1 percent for the past 12 months. The seasonally adjusted CPI decreased 0.2 percent. Since the EPI aims to reflect the prices that people actually pay, it is not seasonally adjusted, making the CPI prior to seasonal adjustment the proper point of comparison.

The drop in the EPI was caused by a steep decline in energy-related prices. Everyday prices except motor fuel averaged a 0.1 percent increase in February. Because the EPI covers only about 35 percent of total consumer expenditures, energy-related price declines have a much larger effect on the EPI than on the CPI. Motor fuel prices fell across all grades, with regular gasoline posting the biggest drop. Regular gasoline prices fell 10.2 percent in February and have plunged 22.8 percent over the past 12 months. On the home energy front, utilities fell 10.3 percent in February while electricity registered a smaller decline, 0.3 percent.

Non-energy components of the EPI, including personal-care services (such as haircuts and massages), prescription drugs, and others, have risen in recent months. Personal-care services are up 3.6 percent over the past 12 months. Prescription drug prices jumped 1.5 percent in February and are up 3.4 percent over the past 12 months. Restaurant prices have increased 2.6 percent over the past year, while admission prices, such as movie tickets, are up 3.6 percent.

Over the past 15 years the EPI has grown faster than the CPI – on average, about 2.9 percent per year, while the CPI grew about 2 percent. That pattern changed recently, with the EPI falling and the CPI rising. Past experience shows that when energy prices stabilize, overall everyday prices can change their trend.

The fall in motor fuel prices seen over the past 12 months will eventually taper off. Crude oil prices have risen since mid-February. After an adjustment lag, which in the past has tended to last several weeks, gasoline prices are likely to stabilize. When energy prices stabilize overall everyday prices will likely move higher. 

Chart 1. Trends in everyday prices (EPI) vs. the Consumer Price Index. The EPI decreased 0.7 percent in February after decreasing by 0.1 percent in January.
Table 1. EPI expenditure categories and February 2016 weights