Just hours before the FOMC sits down in the Marriner Eccles to discuss just how it will announce the first rate hike in 9 years, 7 years to the day after it cut rates to zero, it got the best gift from the BLS it could have asked for: core inflation rose precisely the amount the Fed wanted from a year ago, ot 2.0% on the dot, the highest annual core CPI increase in the past year. Why the jump? "About two-thirds of this increase is accounted for by the shelter index, which rose 3.2 percent over the span."
This took place even as the CPI for energy Fell 14.7% Y/y; while fuel oil plunged 31.4% from a year ago, which meant that the headline CPI increase from a year ago was a far more modest 0.5%, which still was the largest 12 month increase since the 12-month period ending December 2014.
On a monthly basis, headline CPI came in unchanged, declining from the 0.2% increase a month ago, as the indexes for energy and food declined in November, offsetting an increase in the index for all items less food and energy. The energy index fell 1.3 percent, with all of the major component indexes declining except electricity. The food index fell 0.1 percent, as the index for food at home fell 0.3 percent, with five of the six major grocery store food group indexes declining.
The full breakdown by components is shown below:
But, as noted above, the one key index that mattered was the core annual change, which was driven almost entirely by rents. Here are the details:
The index for all items less food and energy increased 2.0 percent over the past 12 months. About two-thirds of this increase is accounted for by the shelter index, which rose 3.2 percent over the span. The medical care index increased 2.9 percent over the past 12 months, and the indexes for education, motor vehicle insurance, tobacco, alcoholic beverages, personal care, recreation, and new vehicles also increased. The indexes for apparel, airline fares, communication, household furnishings and operations, and used cars and trucks are among the indexes that declined over the past 12 months.
Here is the one chart, which according to the BLS, mattered most for determining rising prices:
One can only hope that the Fed, in its attempt to stabilize core inflation, manages to tame surging rents with its 25 bps rate hike, otherwise it may find itself in a very unpleasant situation of chasing record asking rents across the nation and pushing rate hikes far more often than those hoping for a dovish rate hike would like.