November CPI Update…
…Hot Off the Press!
Out of all of the anticipated economic indicators that are watched on a monthly basis, the CPI or Consumer Price Index may be the most important one when it comes to taking a “snapshot,” of where the economy is. The CPI is calculated by the Bureau of Labor Statistics, which is part of the Department of Labor. The index is updated and then published on a monthly, quarterly and annual basis.
The most telling point about the Consumer Price index is that it is also known as the “Cost of Living Index,” because it measures the cost of eight specific consumer expenditure categories. This information is then calculated to determine whether the US inflation rate is rising or falling. Of course the inflation rate determines what goods and services actually cost in an economy. As inflation rises, the Dollar is worth less as each unit of currency will be able to buy fewer of these goods and services. The CPI actually acts as a barometer of sorts, reflecting the current rate of inflation.
“The Affordable Eight”
The eight consumer expenditure groups that make up the CPI are: Housing, Food & Beverage, Apparel, Medical Care, Recreation, Transportation, Education & Communication and Other Goods & Services. The last category of “Other Goods & Services,” can include items such as haircuts, tobacco or funeral expenses….hence it is a rather broad category indeed. Also included in the CPI are government charges for water and sewer usage, automobile registration fees and sales and excise taxes.
In short, each of the aforementioned categories contains a variety of goods and services purchased by consumers for personal use. If the CPI rises on these categories, then it means that inflation is also on the rise, hence, your currency is worth less in regards to its buying power. The CPI is an active reflection of what your pocketbook is worth at any given time…..and this is why it is so important.
Consumer Price Index Data Release
The newest numbers for the CPI were transmitted (released) from the Bureau of Labor Statistics on November 17th at 8:30 am for the month of October 2016. This data, while open to interpretation, is nevertheless considered official government information as released.
The Consumer Price Index for ALL Urban Consumers (CPI-U) increased by 0.4% in October on a seasonally adjusted basis. Over the last 12 months, the all items index rose by 1.6% before seasonal adjustment.
As in September, increases in the shelter and gasoline (fuel) indexes were the main causes of the rise in the all items index. The gasoline index rose 7.0% in October and accounted for than half of the increase in the all items index. The shelter index increased by 0.4% for the second straight month.
The energy index increased by 3.5%, its largest advance since February 2013. The indexes for fuel oil and gasoline were up 5.9% and 7.0% respectively, while the indexes for electricity and natural gas saw relatively smaller increases of 0.4% and 0.9%. In contrast, the index for food remained unchanged for the fourth consecutive month, as the food at home index continued to decline.
The index for all items less food and energy rose 0.1% for the second straight month. Along with the shelter index, the indexes for apparel, new vehicles and motor vehicle insurance all increased in October, as did the indexes for education, household furnishings and operations, alcoholic beverages and tobacco. The indexes for personal care, communication, used cars and trucks, recreation and airfare all declined. The medical care index remained flat over the month.
The all items index rose 1.6% for the 12 months ending October, its largest 12-month increase since October 2014. The index for all items less food and energy rose 2.1% for the 12 months ending October. The food index declined 0.4% over the span, while the energy index rose 0.1%.
The Consumer Price Index for ALL Urban Consumers (CPI-U) increased 1.6% over the last 12 months to an index level of 241.729 (1982-84=100). For the month, the index increased 0.1% prior to seasonal adjustment.
The Chained Consumer Price Index for ALL Urban Consumers (C-CPI-U) increased 1.5% over the last 12 months. For the month, the index rose 0.1% on a not seasonally adjusted basis. Please note that the indexes for the past 10-12 months are subject to revision.
“What Does it Mean?”
Let’s start with a few basics for those who are not regular followers of the CPI. The CPI-U and C-CPI-U data covers (or affects) approximately 89% of the total U.S. population and includes, in addition to wage earners and clerical worker households, groups such as professional, managerial, technical workers, the self-employed, short-term or seasonal workers, the unemployed, retirees and others not in the labor force.
Seasonally adjusted numbers only mean that the index figures are adjusted to take into account the seasonal costs associated with holidays, winter weather or summer seasons for that category of products…..as an example. For instance, it can be anticipated that home heating fuel costs will normally increase during the winter because more of that product is used by consumers at that time of year and the transportation costs to deliver that commodity will increase as well. Hence, when comparing home heating fuel prices from one month to another, the Bureau of Labor Statistics must calculate into that pricing such anticipated seasonal price adjustments. If the numbers are not seasonally adjusted, it means they are raw numbers as collected by the Department.
The index measures price changes from a designated reference date. For the CPI-U the reference date (base) is 1982-1984 and as such, the base number of 100 originates from that date range. The reference base for the C-CPI-U (or chained CPI) is the designated date of December 1999 and as such, the base number for that category of 100 originates from that date. Hence, 100 is the base category number for index measurements. As an example, a (total) increase of 16.5% from the C-CPI-U base date is shown as 116.500. It can also be expressed as Dollars. As an example, the price of a base period market “basket” of goods and services in the CPI has risen from $10.00 in December 1999 to $11.65 as of the current date. Again, these are only examples based on empirical information as provided by the Bureau of Labor Statistics.
“Now….REALLY What Does it Mean?”
The latest CPI numbers seem to show that October was a fairly stable month for prices that the consumer was forced to contend with. The only major outlier regarding a “Cost of Living,” category was fuel and fuel expenses. In October they reflected a rather heavy increase in costs. This would be expected to affect the amount of disposable income consumers may have had for other purchases, when you consider they had to spend more at the fuel pump.
On the back end of transportation costs, it would explain why the costs associated with shipping products from manufacturers to retailers and then from the retailer to the consumer also increased. Fuel cost increases are immediate and obvious to consumers…..every time they fuel up their vehicles. For most in the U.S. population, fuel expenses cannot be understated as they need their vehicles for work. Even if they commute on public transportation, those fuel cost increases must be absorbed somewhere.
It can also be extrapolated that as consumers were purchasing home heating fuel for their homes in preparation for winter, those increases in fuel costs also impacted their pocketbooks. Again, there are some products that must be purchased over others. Home heating fuel will be purchased over luxury items or non-essentials.
In general, the newest CPI released data could be interpreted to indicate that for many products such as food, communication, electronics and recreation….. all remained “flat” or even slightly declined in cost. Even medical expenses cooperated and remained “idle,” for October. However, the negative offset for the index was gasoline and fuel…..which is directly related to energy costs for the consumer. It not for the price at the pump and for fuel and energy costs in general, the CPI would have been an overall positive set of numbers for the U.S. consumer.
For the Mosaica client that operates an SMB, especially one that is a distributor or retailer of tangible goods that are required to be shipped to retail or distribution points…..or even directly to consumers, our recommendation would be to continue exploring new and innovative shipping avenues.
Try and “lock in,” shipping rates through the holiday season if possible. Research new local and regional shippers who may have better transportation costs that can be passed on to you their client. You will need to be aggressive in your efforts to keep your shipping/ transportation costs under control, as the latest CPI indicators seem to reflect an increase in the fuel and energy categories….which may create additional costing pressures in these areas for SMB’s.
