Economy Watch: Inflation Modest in December

Rising rents and health care costs were the main drivers in December's inflation increase, which was the largest since January 2017, according to the Bureau of Labor Statistics.

Source: U.S. Bureau of Labor Statistics, Consumer Price Index, December 2017
Source: U.S. Bureau of Labor Statistics, Consumer Price Index, December 2017

The Consumer Price Index for All Urban Consumers increased 0.1 percent in December compared with November, the Bureau of Labor Statistics reported Jan. 12. Over the last 12 months, the all items index rose 2.1 percent, representing modest inflation that will probably not be much of a factor in retail spending or rent increases, though other forces are driving those.

An increase of 0.4 percent in the BLS shelter index accounted for almost 80 percent of the overall one-month increase in prices, pointing to the fact that apartment rents, though not rising quite as fast in recent years, are still going up in a number of markets. The bureau’s food index also rose in December, with the indexes for food at home and food away from home both increasing. The energy index, which rose sharply in November, declined in December as the price of gasoline decreased.

The index for all items less food and energy, which is sometimes called the core rate of inflation, increased 0.3 percent in December, its largest increase since January 2017. Along with shelter, prices for medical care, used cars and trucks, new vehicles, and motor vehicle insurance were among those that increased in December. The price of apparel, airline fares, and tobacco all declined over the month.

In a separate report in December—and one more directly affecting construction and development—the Federal Reserve Bank of St. Louis reported that the price of construction materials was slightly down for the month. In November, the producer price special index for construction materials came in at 224.5 (1982 = 100). In December, the index dropped to 224.2. A year ago, however, the index was at 215.5.