Friday, March 16, 2012

February CPI growth at 4-year high, fuel and apparel up

The Bureau of Labor Statistics released today the February CPI for US urban areas and regions. In the West region, from February 2011 to February 2012, the CPI increased 2.5 percent. This is larger than the year-over-year increases for February of 2009, 2010 or 2011, during which the change in CPI never exceeded 2 percent.

In the first graph, we can see that the CPI growth in February 2012 was the largest annual change for February since 2008, prior to the financial crisis of October 2008. 2005 through 2007 also showed higher annual changes.

The index increases are being driven by increases in prices in apparel, food and transportation. Transportation and apparel prices both increased by 4.3 percent, year over year. Food costs also increased, rising 3.2 percent.

Housing prices increased less with a year-over-year increase of 1.8 percent. Although annual increases in rent (according to State of Colorado data) have exceeded 5 percent in many areas of the state, the housing component of CPI also reflects declining and stagnant home prices, which indirectly mitigate the increases in rent levels within the index.

Recent price increases will impact household calculations and attitudes on spending as many households conclude that discretionary spending will need to be scaled back in the face of increasing food and transportation costs. According to the most recent personal income data, personal income growth has not been keeping up with CPI growth.

The second graph shows year-over-year changes in CPI for all months since 2002. Annual CPI growth hovered around 3 percent for much of 2011, but has been declining during the past five months.

The CPI increase form January 2012 to February 2012 was 0.44 percent, which was the largest month-to-month increase since April 2011.

Nationally, the CPI increased slightly more than in the West region:

The gasoline index rose sharply in February, accounting for over 80
percent of the change in the all items index. The gasoline increase
led to a 3.2 percent rise in the energy index despite a decline in
the index for natural gas. The food index was unchanged in February,
with the food at home index unchanged for the second month in a row
as major grocery store food indexes were mixed.

Over the past ten years (comparing January 2003 to January 2012), the CPI has risen 22 percent. In other words, a dollar today buys less than 4/5ths of what it did in 2003.