Everyday Prices Plunge In November

The EPI Fell 1.0 percent While the CPI Decreased 0.3 Percent in November
EPI Expenditure Categories and November 2018 Weights

AIER’s Everyday Price Index plunged 1.0 percent in November after falling 0.1 percent in October. Over the past five months, the EPI has fallen three times for an annualized pace of −2.7 percent. 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, fell 0.3 percent in November. The EPI is not seasonally adjusted, so we compare it with the unadjusted CPI. Over the past 12 months, the EPI has risen 1.7 percent versus a 2.2 percent gain for the CPI.

The EPI including apparel, a broader measure that includes clothing and shoes, sank 1.2 percent in November and is up 1.5 percent over the past year. Apparel prices plummeted 3.2 percent on a not-seasonally-adjusted basis in November and are down 0.9 percent over the past year.

For the third month in a row, the performance of the index was largely driven by a decline in energy. Motor fuel fell 7.1 percent in November while fuel and utilities were the big decliners in September and October. Food at home (groceries) and telephone services also posted significant declines in November. The declines were partially offset by higher prices for food away from home (restaurants), alcoholic beverages, housekeeping supplies, prescription drugs, cable and satellite services, and internet services. In total, 15 of the 24 categories within the EPI were up in November while 8 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. Ten of the 21 categories with increases have 12-month gains between 0 and 2 percent, leaving 11 with gains above 2 percent.

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 (13.2 percent), and motor fuel (12.8 percent). Together, these four categories account for 63.8 percent of the EPI. Among these important components, food at home is up just 0.4 percent from a year ago, food away from home is up 2.6 percent, household fuels and utilities are up 1.4 percent, and motor fuel is 5.2 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 five consecutive months of flat or falling everyday prices, the five-month annualized change in the EPI was −2.7 percent in November. Energy-related categories remain the most significant driver of monthly changes. 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 broadening of upward price changes, as reflected in the slowly rising number of categories with 12-month price changes greater than zero as well as 12-month increases greater than 2 percent, is consistent with a long economic expansion, tightening labor market, and rising wages. So far, the pace of increase in most categories of consumer prices remains moderate by historical comparison, but careful monitoring is warranted.

The EPI Fell 1.0 percent While the CPI Decreased 0.3 Percent in November
EPI Expenditure Categories and November 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.