AIER’s Everyday Price Index (EPI) fell 0.2 percent in December following a 0.2 percent rise in November. The EPI measures price changes people see in everyday purchases such as groceries, restaurant meals, gasoline, and utilities. As a comparison, the more widely known price gauge, the Consumer Price Index (CPI), which is reported by the Bureau of Labor Statistics and includes less frequently purchased items, was down 0.1 percent in December. The EPI is not seasonally adjusted, so we compare it with the unadjusted CPI.
The EPI including apparel, a broader measure, was off 0.5 percent in December as apparel prices plunged 3.8 percent for the month. The EPI and the EPI including apparel exclude prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and prices contractually fixed for prolonged periods (such as housing).
For all of 2017, the EPI rose 2.2 percent while the EPI including apparel was up 1.9 percent. For the same period, the CPI was up 2.1 percent. Over the last five years, the EPI is up at an annualized rate of just 0.4 percent, the EPI including apparel is up at an annualized rate of 0.3 percent, and the CPI is up 1.4 percent.
The largest contributors to the 2.2 percent rise in the EPI for 2017 were both related to energy. Motor fuel contributed 1.04 percentage points to the 2.2 percent rise while household fuels and utilities added 0.48 percentage points. Together, these two categories accounted for more than two-thirds of the total increase in everyday prices. Restaurants and groceries added 0.41 and 0.20 percentage points respectively to the 2.2 percent increase in the EPI. Finishing out the top five contributors, cable and satellite television and radio service added 0.21 percentage points. Combined, the top five categories added 2.35 percentage points in 2017. The major negative contributor was telephone services, which reduced the EPI by 0.46 percentage points for the year. Most of the remaining categories made very small contributions to the rise in the EPI.
For the month of December, 15 of the 24 categories were up while 9 were down. Over the last five years, 17 of 24 categories have shown price increases while 7 have shown price declines. Among the 17 categories with price increases, 9 are up more than 2 percent annualized and 8 are up at an annual rate between 0 and 2 percent.
For the components with the largest weights in the EPI, food at home (22.3 percent weight) is up 0.9 percent from a year ago and up at a 0.5 percent annualized rate over the past five years, food away from home (16.6 percent) is up 2.5 percent over the last 12 months and 2.5 percent over the last five years, household fuels and utilities (14.3 percent) are up 3.5 percent for the year and 1.7 percent over five years, and motor fuel (10.4 percent) is up 10.7 percent since December 2016 but down 5.4 percent annually since five years ago. Combined, these top four categories account for 63.6 percent of the EPI.
For 2017, the key take-aways are that food and energy were the main contributors to increases in everyday prices. The sharp difference in the one-year price increase and five-year annualized decline in motor fuels (+10.7 percent versus −5.4 percent) highlights the extreme volatility in energy prices. Among most other components, prices are relatively stable.