The January Everyday Price Index (EPI) ticked down 0.1 percent in contrast to a slight uptick in the Consumer Price Index (CPI). The difference between the EPI and CPI came from a 0.3 percent increase in housing, a component that is not included in the EPI. Housing is excluded from the EPI because purchases are infrequent and prices are contractually fixed.
Extreme weather across the country, from drought in the West to snow and cold in the East, resulted in a 2.7 percent increase in household fuels and utilities. Weather restrained travel, and motor fuel declined 3.3 percent – offsetting turned up thermostats. Record temperatures and snowfall hindered consumer plans to purchase goods. January retail sales slumped 0.4 percent with weaknesses in automobiles and department stores.
The CPI was led higher by a 1.3 percent increase in lodging away from home and a 1.5 percent increase in owners’ equivalent rent. As the Federal Reserve continues to taper bond purchases mortgage rates will continue to rise. In addition, the Federal Reserve Senior Loan Officer Survey indicated banks were tightening mortgage standards. Both these factors will make housing more expensive. January housing starts and permits declined but supply constraints are not evident.
The CPI measures the price level of a wide basket of goods and services including big ticket items such as houses, appliances, and automobiles. In contrast, AIER’s EPI measures the price of goods and services purchased on a regular basis. Therefore, the EPI reflects the day-to-day strain on consumer budgets and more closely reflects inflation expectations used in decision making. AIER continues to monitor potential sources of price inflation in our latest Inflation Reports.
The January EPI incorporates updated weights to more accurately reflect everyday consumer purchases. Each weight represents the relative importance of an expenditure category in a consumer budget. It is important to annually adjust the weights because consumers change purchasing patterns with prices and preferences. For example, over the last decade internet services have become more important than printed reading material.
About the EPI
AIER’s Everyday Price Index (EPI) measures the changing prices of frequently purchased items like food and utilities. We do this by selecting the prices of goods and services from the thousands collected monthly by the Bureau of Labor Statistics in computing its Consumer Price Index. The EPI basket contains only prices of goods and services that Americans typically buy at least once a month, excluding contractually fixed purchases such as mortgages. Our staff economists weight each EPI category in proportion to its share of Americans’ average monthly expenditures. In order to better reflect the out-of-pocket prices that consumers experience on a daily basis, the EPI does not seasonally adjust prices.