The January 2016 CPI numbers were released on Thursday. Headline inflation over the past ten years has averaged 1.947% per year. This is down from December’s number of 2.019%. In January 2015, the number was 2.255%. While it has not been a straight road down, there is a clear downward trend in inflation.
With the January 2016 release of the CPI numbers, we also received a change in the weighting of the components within the headline number. Next I’m going to walk through the important components and their changes.
The largest component is Housing. In January 2012, the weighting was 41.020 and it has been moving upward for four years to 42.235 in January 2016. Meanwhile, the ten-year inflation rate for Housing has been decreasing from 2.433% in January 2012 to 2.021% in January 2016.
Transportation is next and its weighting has decreased each year over the past four from 16.875 to 15.259. The ten-year inflation rate for Transportation has rapidly decreased from 4.186% in January 2012 to 0.811% in January 2016. Within the Transportation component is Motor Fuels. While I do not track this sub-component, I do track the Core Measure of Energy, which is a combination of Motor Fuels and the Fuels sub-component of Housing. The weighting of Energy has decreased from 9.679 in January 2012 to 6.816 in January 2016. The ten-year inflation rate for Energy has decreased from 11.212% in January 2012 to -0.492% in January 2016.
The third component I want to mention is Medical Care. The weighting has moved up all four years from 7.061 to 8.375. The ten-year inflation rate has moderated from 4.594% to 3.784%. This number is still above the headline number and combined with the change in weighting will continue to make this number pull inflation higher. Also, notice Medical Care had a lower weighting than Energy in January 2012 (7.061 vs. 9.679) and how that has reversed in January 2016 (8.375 vs. 6.816). If I were to make a claim, maybe the gasoline savings for consumers is now being spent on Medical Care. CPI numbers can’t verify that since they report the rate of change in price levels and we would need expenditures in these areas to justify that claim.
In looking forward, there is a leading indicator of what to expect from upcoming CPI figures and it has been moving higher for several months now indicating the headline CPI number should begin to move higher. For several months now, I have a to-do item to look at this indicator and determine if it is useful. A simple feel test tells me it has a high emotional element but a low accuracy factor. If I ever get to examine it, I’m certain there will be a post about it in the future.