Motor-Fuel Prices Drag Everyday Price Index Down in January

The EPI fell 0.3 percent while the CPI increased 0.2 percent in January
EPI Expenditure Categories and January 2019 Weights

AIER’s Everyday Price Index fell 0.3 percent in January after dropping 0.9 percent in December. January marks the fourth consecutive decrease in the Everyday Price Index and the fifth drop in the last seven months. The EPI measures price changes people see in everyday purchases such as groceries, restaurant meals, gasoline, and utilities. It excludes prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and prices contractually fixed for prolonged periods (such as housing).

The Consumer Price Index, which includes everyday purchases as well as infrequently purchased, big-ticket items and contractually fixed items, rose 0.2 percent in January following back-to-back 0.3 percent declines in December and November. The EPI is not seasonally adjusted, so we compare it with the unadjusted CPI. Over the past 12 months, the EPI has fallen 0.1 percent versus a 1.6 percent gain for the CPI.

The EPI including apparel, a broader measure that includes clothing and shoes, fell 0.2 percent in January after a pair of 1.2 percent drops in December and November. Over the past year, the EPI including apparel is down 0.1 percent. Apparel prices rose 1.6 percent on a not-seasonally-adjusted basis in January but are up just 0.1 percent over the past year.

Motor-fuel prices continued to plunge in January, falling 5.2 percent for the month on a not-seasonally-adjusted basis. Over the past year, motor-fuel prices are off 9.9 percent. That decline is in line with the decline in the price of crude oil. West Texas Intermediate crude has fallen from about $65 per barrel in January 2018 to less than $55 per barrel last month.

Partially offsetting the decline in motor-fuel prices were increases in food, both at home (up 0.6 percent for the month) and away from home (0.3 percent), cable and satellite TV and radio service (0.4 percent), prescription drugs (0.6 percent), alcoholic beverages (0.2 percent), and recreational reading materials (2.3 percent).

The components with the largest weights in the EPI are food at home (21.1 percent), food away from home (17.6 percent), household fuels and utilities (13.6 percent), and motor fuel (10.9 percent). Together, these four categories account for 63.2 percent of the EPI.

Motor fuel remains the most significant driver of changes in recent months. However, labor-intensive areas, especially restaurants, will likely continue to see upward price pressures given the tightness of the labor market and recent acceleration in average hourly earnings. The broadening of upward price changes, as reflected in the slowly rising number of categories with 12-month price changes greater than zero or 12-month increases greater than 2 percent, is consistent with a long economic expansion, a tightening labor market, and rising wages. So far, the pace of increase in consumer prices remains moderate by historical comparison, but careful monitoring is warranted.

The EPI fell 0.3 percent while the CPI increased 0.2 percent in January
EPI Expenditure Categories and January 2019 Weights

Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.