Consumer Price Index Jumps 0.7% On High Gas Prices For February 2013

[SEE3772]

Submitted by Robert Oak

The February Consumer Price Index jumped 0.7% from January. CPI measures inflation, or price increases. The culprit is gas prices again, which skyrocketed 9.1% for the month and is 75% of the monthly increase. This is the biggest monthly jump in CPI since June 2009. Take food and energy items out of the index and CPI actually rose 0.2% from January. Energy overall increased 5.4% and wouldn't it be nice to see stable gas prices instead of this never ending gasoline roller-coaster ride.



CPI is now up 2.0% from a year ago as shown in the below graph. Gas prices even hurt the year ago inflation rate as last month the year ago change was 1.6%.



Core inflation, or CPI minus food and energy items, increased 0.2% for February. Core inflation has risen 2.0% for the last year. Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% is their boundary figure. The last word from the Fed is they will continue quantitative easing, which usually increases commodity prices and explains the soaring stock market.



Core CPI's monthly percentage change is graphed below. Last month core inflation increased 0.3%, the largest increase since May 2011. The ten year average for core inflation has been a 1.9% anual increase.



Core inflation's increase seems to be across the board again. Shelter increased 0.2% and is up 2.2% for the year. The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels. Rent increased 0.3% and lodging away from home, or motels, hotels jumped 1.2% for the month. Airfares decreased -0.3% after five months of consecutive increases. Used cars and trucks jumped by 0.8% while new autos declined by -0.3%, the largest drop since January 2010. Graphed below is rent, where cost increases hits people who can least afford it most.



A core inflation cost which never drops is medical care. Medical care services increased 0.3% and has increased 3.9% over the last 12 months. Nowhere else do we see a ridiculous, constant increase in costs every single month. You'll never see the below graph go below zero, unlike other item prices.



Food and beverages overall increased 0.1% and have increased 1.6% from a year ago. The food at home index (think groceries) had no change for the month and is up 1.2% for the year. Eating out, or food away from home increased 0.1% from last month and is up 2.3% from a year ago. These price increases are pretty much on par with last month's change.



Energy overall shot up 5.4% for February, and energy costs are now up 2.3% for the last 12 months. This is a change from last month where the energy index declined -1.7%. The BLS separates out all energy costs and puts them together into one index and this one includes gasoline. Fuel oil increased 3.1%, natural gas 1.2% and electricity increased 0.3% for the month. Energy costs are also mixed in with other indexes, such as heating oil for the housing index and gas for the transportation index. Below is the overall CPI energy index, or all things energy.



Graphed below is the household energy index which includes electricity and natural gas, shown by monthly percentage change. This month the index increased 0.6%. From this time last year household energy has increased 0.7%. This is a different, special index to show the overall costs for energy into your home only, (unless you drive your car in your mansion or run generators for your tent) and represents about 4.1% of month assumed expenditures.



Graphed below is the CPI gasoline index, which soared 9.1% this month and the first month in a row for such a jump. This is the highest monthly increase since June 2009's 20.4% jump. We can see the CPI gasoline index is at 2008 oil bubble levels.



Below are gas prices, last updated March 11th, where gas was $3.71/gal. High oil prices have a strong correlation with recessions ad we can see next month's CPI is shaping up like we should not see this large of a monthly jump in the gasoline index.



According to the BLS, for the year, food and beverages, which includes food at home, made up 15.3% of the index. Housing is 41% and transportation, including gas for the car, is 16.9% and all energy is 9.5%. Medical care is only 7.2%, they claim, which goes to show what averages can remove. Most people are not sick and why the average costs are so low. A Medical event can bankrupt a family, with insurance.

CPI-W is used to calculate government transfer payments, such as social security increases. The cost of living adjustment (COLA) for social security and other government payments will be 1.7% for 2013. For February CPI-W increased 1.0%, not seasonally adjusted for the year has increased 1.9%.

Chained CPI
There is a lot of effort to reduce the social security cost of living adjustments by using chained CPI instead of CPI-W as an inflation index. Last word from is the Obama administration will agree to cut CPI by using the chained index instead of the current one in budget negotiations. In a nutshell, chained CPI will lower those cost of living adjustments than using the CPI-W. Below is the not seasonally adjusted monthly difference between chained CPI and CPI-W, up to November, as the indexes would be used in the cost of living adjustments. As we can see over time, chained CPI's cumulative effects will be to reduce social security benefits.



Below is the percent change from one year ago between chained CPI in blue, against CPI-W the index currently used for cost of living adjustments, in maroon. For February, CPI-W change from one year ago is 1.9% whereas chained CPI is 1.8%. This would imply a lower cost of living adjustment for social security if Congress and this administration get their way on using chained CPI.



Using chained CPI instead of CPI-W is a glorified way to cut social security benefits. Chained CPI allows for more substitution and with medical costs, there is no substitution for say heart bypass surgery. Substitution is an ongoing controversy in CPI. The claim is when prices on one item skyrocket, the consumer can substitute that item for another. In other words, if steak prices skyrocket, the consumer can start eating chicken or hamburger. This is why the attack on social security is often referred to as cat food, for cat food would be eventually substituted for groceries using chained CPI.

CPI details
The DOL/BLS does take yearly surveys on where the money goes in the monthly budget, but as one can see, food and energy are significant amounts of the monthly finances. Run away costs in these two areas can break the bank, so can food. Additionally CPI uses substitution, so if steak goes through the roof, somehow we're all just fine with hamburger and prices didn't really overall increase much.

Other CPI report overviews, unrevised, although most graphs are updated, are here. If you're wondering why the graphs look weird, the graph calculates percentages from the index and doesn't round. The actual data from the BLS report does round to one decimal place. In other words, 0.05% is rounded to 0.1%.