Everyday Prices Fall for the Second Time in Four Months

The EPI Fell 0.1 Percent While the CPI Rose 0.2 Percent in October
EPI Expenditure Categories and October 2018 Weights

AIER’s Everyday Price Index fell 0.1 percent in October after being unchanged in September. Over the past four months, the EPI has fallen 0.1 percent in two (October and July) and been unchanged in two (August and September). 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 October after posting gains of 0.1 percent in each of the prior two months. The EPI is not seasonally adjusted, so we compare it with the unadjusted CPI. Over the past 12 months, the EPI has risen 2.9 percent versus a 2.5 percent gain for the CPI.

The EPI including apparel, a broader measure that includes clothing and shoes, rose 0.1 percent in October and is up 2.6 percent over the past year. Apparel prices jumped 1.3 percent on a not-seasonally-adjusted basis in October, though over the past 12 months apparel prices are down 0.4 percent.

For the second month in a row, the performance of the index was largely driven by a decline in fuel and utilities prices (down 0.9 percent), which subtracted 0.12 percentage points. That decline was partially offset by higher prices for motor fuels (up 0.7 percent, adding 0.08 percentage points), tobacco and smoking products (up 1.5 percent, adding 0.03 percentage points), and restaurants (up 0.1 percent, adding 0.02 percentage points). In total, 11 of the 24 categories within the EPI were up in October while 12 were down and 1 was unchanged.

Over the past year, 21 of 24 categories show higher prices compared to a year ago while 3 show price declines. Eleven of the 21 categories with increases have 12-month gains between 0 and 2 percent, leaving 10 with gains above 2 percent. The category with the largest increase by far is motor fuel, for which prices are up 16.2 percent from a year ago.

The components with the largest weights in the EPI are food at home (20.7 percent), food away from home (17.1 percent), household fuels and utilities (13.4 percent), and motor fuel (12.7 percent). Together, these four categories account for 63.9 percent of the EPI. Among these important components, food at home is up just 0.1 percent from a year ago, food away from home is up 2.5 percent, household fuels and utilities are up 1.5 percent, and motor fuel is 16.2 percent higher. Most consumers watch prices, but certain ones, even among everyday purchases, tend to stand out. Food and gasoline prices tend to be volatile and get attention, particularly when prices rise quickly.

With four consecutive months of flat or falling everyday prices, the three-month annualized change in the EPI was −0.2 percent in October compared to −0.4 percent in September. Energy-related categories remain the most significant driver of monthly changes, and with crude oil prices falling sharply in mid-November it’s probable that the EPI will see a decline for the month of November. However, labor-intensive areas, especially restaurants, will likely continue to see upward price pressures given the tightness of the labor markets and recent acceleration in average hourly earnings.

The EPI Fell 0.1 Percent While the CPI Rose 0.2 Percent in October
EPI Expenditure Categories and October 2018 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.