Categories that helped power the cooling of CPI are U-Turning – used & new vehicles, food, energy – just as housing seems to be coming in line.

By Wolf Richter for WOLF STREET.

The overall Consumer Price Index rose by 0.39% (+4.8% annualized) in December from November, the sharpest increase since February 2024. It has been accelerating since the low point in June (blue).

The three-month CPI, which irons out some of the month-to-month squiggles. jumped by 3.9% annualized, the sharpest increase since April, and the fifth month-to-month acceleration in a row.

The year-over-year CPI rose by 2.89%, the sharpest increase since July, and the third month in a row of acceleration.

Categories that helped power the cooling of CPI are U-Turning.

Food price inflation, after a lull at very high levels, has been accelerating for months and now started to push the year-over-year needle higher. Energy prices surged for the month, which whittled down the year-over-year drop to just a hair. Used vehicle prices, which had plunged off the historic spike, jumped in December for the fourth month in a row, a sign that the plunge has ended, and further whittled down the erstwhile double-digit year-over-year plunge. New-vehicle prices also jumped for the second month in a row.

The Core CPI, which excludes food and energy components to track underlying inflation, rose by 3.24% year-over-year, a deceleration from the prior month (+3.32%), but a faster rise than in July and August. It has been stuck in the same 3.1% to 3.3% range for the seventh month in a row.

The major components, year-over-year:

• Overall CPI: +2.89% (yellow).
• Core CPI +3.24% (red).
• Core Services CPI: +4.46% (blue).
• Durable goods CPI: -1.87% (green).

Month-to-month “Core” CPI rose by 0.23% (+2.7% annualized) in December from November, the smallest increase since July, following four months of the biggest increases since March (blue in the chart below).

The 6-month average “core” CPI accelerated to +3.2% annualized, the second month in a row of acceleration and the worst since June (red).

“Core services” CPI.

Month-to-month, the core services CPI, which are all services less energy services, decelerated to +3.2% annualized in December from November (blue line in the chart below).

The three-month core services CPI decelerated to +3.6%, but remained substantially higher than the 3.1% to 3.3% range over the summer.

The 6-month core services CPI, which irons out a lot of the month-to-month squiggles, accelerated to 4.0% annualized, the worst since August (red).

The housing components of core services.

The Owners’ Equivalent of Rent CPI accelerated sharply to +3.8% annualized in December from November (+0.31% not annualized). The three-month average decelerated a hair to +3.8% annualized.

OER indirectly reflects the expenses of homeownership: homeowners’ insurance, HOA fees, property taxes, and maintenance. It’s the only measure for those expenses in the CPI. It is based on what a large group of homeowners estimates their home would rent for, with the assumption that a homeowner would want to recoup their cost increases by raising the rent.

As a stand-in for homeowners’ insurance, HOA fees, property taxes, and maintenance costs, OER accounts for 27% of overall CPI and estimates inflation of shelter as a service for homeowners.

Rent of Primary Residence CPI also accelerated sharply to +3.8% annualized in December from November. The 3-month rate accelerated to +3.3%. The rent CPI is back roughly where it had been before the pandemic.

Rent CPI accounts for 7.7% of overall CPI. It is based on rents that tenants actually paid, not on asking rents of advertised vacant units for rent. The survey follows the same large group of rental houses and apartments over time and tracks the rents that the current tenants, who come and go, paid in rent for these units.

Year-over-year, both continued to decelerate: OER CPI +4.8% (red), Rent CPI +4.3% (blue), but both remain well above the range before the pandemic.

“Asking rents…” The Zillow Observed Rent Index (ZORI) and other private-sector rent indices track “asking rents,” which are advertised rents of vacant units on the market for rent. Because rentals don’t turn over that much, the spike in asking rents through mid-2022 never fully translated into the CPI indices because not many people actually ended up paying those jacked-up asking rents.

For December, the ZORI (seasonally adjusted) rose by 0.28% month-to-month and by 3.4% year-over-year.

The chart shows the CPI Rent of Primary Residence (blue, left scale) as index value, not percentage change; and the ZORI in dollars (red, right scale). The left and right axes are set so that they both increase each by 55% from January 2017:

• Since January 2017: ZORI +52%, CPI Rent +41%.
• Since January 2020: ZORI +34%, CPI Rent +27%.

Rent inflation vs. home-price inflation: The red line in the chart below represents the CPI for Rent of Primary Residence as index value. The purple line represents Zillow’s “raw” Home Value Index for the US. Both indexes are set to 100 for January 2000 [here are the largest, most expensive  33 metros: The Most Splendid Housing Bubbles in America ]:

The CPI for motor-vehicle maintenance & repair rose by 2.2% annualized in December from November, after having spiked by 13% and 12% annualized in August and September.

Year-over-year, the index rose by 6.2%, the worst increase since May.

The CPI for motor vehicle insurance rose by 4.9% annualized in December from November, and by 11.3% year-over-year.

Since January 2022, it exploded by 52%, driven the historic spike in used vehicle prices, and therefore replacement costs for insurance companies, and by surging repair costs.

Food away from Home CPI rose by 3.6% annualized (+0.30% not annualized) in December from November, and by 3.6% year-over-year, same as in the prior month, and the smallest increase since August 2020.

Often called food services, the category includes full-service and limited-service meals and snacks served away from home, such as in restaurants, cafeterias, at stalls, etc.

Major Services ex. Energy Services	Weight in CPI	MoM	YoY
Core Services	65%	0.3%	4.8%
Owner’s equivalent of rent	27.2%	0.3%	4.8%
Rent of primary residence	7.8%	0.3%	4.3%
Medical care services & insurance	6.5%	0.2%	3.4%
Food services (food away from home)	5.4%	0.3%	3.6%
Education and communication services	5.0%	-0.2%	1.8%
Motor vehicle insurance	3.0%	0.4%	11.3%
Admission, movies, concerts, sports events, club memberships	1.9%	0.3%	2.8%
Other personal services (dry-cleaning, haircuts, legal services…)	1.5%	-0.3%	3.7%
Lodging away from home, incl Hotels, motels	1.4%	-1.0%	2.6%
Motor vehicle maintenance & repair	1.3%	0.2%	6.2%
Public transportation (airline fares, etc.)	1.1%	2.7%	5.7%
Water, sewer, trash collection services	1.1%	0.1%	5.2%
Video and audio services, cable, streaming	0.9%	0.8%	1.5%
Pet services, including veterinary	0.4%	0.1%	6.2%
Tenants’ & Household insurance	0.4%	0.0%	1.7%
Car and truck rental	0.1%	0.6%	-6.2%
Postage & delivery services	0.1%	0.4%	10.1%

The Core services CPI overall has risen by 24% since January 2020.

Prices of Goods.

The used vehicle CPI jumped by 1.2% not annualized (15.5% annualized) in December from November, seasonally adjusted, the fourth month-to-month increase in a row (red).

Not seasonally adjusted, the index also increased though it would normally fall in December (blue).

The recent surge has whittled down the year-over-year decline to 3.2%, from the year-over-year plunge of over 10% last summer.

The 15% plunge of used vehicle retail prices from early 2022 through mid-2024 was a powerful factor in the cooling of CPI inflation. But that has ended. This U-turn in used vehicle retail prices has occurred amid very tight retail inventories, strong demand, and rising wholesale prices.

Prices are still up 32% from January 2020, and there are now substantial doubts they will give up more of the pandemic price spike.

New vehicles CPI jumped by 0.47% not annualized (+5.8% annualized) in December from November, seasonally adjusted, the fourth month of increases over the past five months.

This whittled down the year-over-year drop to 0.4%. Since January 2020, the index is up 20%. At this rate, new vehicle CPI may carve out a new all-time high in a month or two; it’s now just 0.4% below its prior all-time high.

New-vehicle prices have been very sticky, unlike used-vehicle prices, despite the glut of new vehicles now on many lots, as automakers are trying to preserve their profit margins. The big incentives and discounts in recent months mostly just undid part of the increases in MSRPs.

But EVs experienced a lot of demand, and EVs sales surged toward the end of the year, and were up about 10% for all of 2024, despite the decline in Tesla sales, even as ICE vehicle sales edged up by less than 2%, and this demand for EVs may have contributed to the surprising rise of the CPI for new vehicles over the past two months.

New and used vehicles dominate Durable Goods. All major durable goods categories experienced often dramatic price declines starting in mid- to late 2022, after the price spike during the pandemic. But the month-to-month price drops in motor vehicles ended in September, and prices have risen since then. The other major categories of durable goods prices continue to decline:

Major durable goods categories	MoM	YoY
Durable goods overall	0.2%	-1.9%
New vehicles	0.5%	-0.4%
Used vehicles	1.2%	-3.3%
Household furnishings (furniture, appliances, floor coverings, tools)	-0.2%	-0.9%
Sporting goods (bicycles, equipment, etc.)	-0.4%	-2.0%
Information technology (computers, smartphones, etc.)	-1.0%	-7.6%

Food Inflation.

The CPI for “Food at home” – purchased at stores and markets and eaten off premises – jumped by 3.9% annualized in December from November (+0.32% not annualized). After a lull at painfully high levels, food prices have been increasing for the past six months, visible in the steepening slope of the chart below.

This pushed the year-over-year price gain to 1.8%, the biggest increase since October 2023.

The avian flu outbreak that started months ago has by now created egg shortages, with many stores in January showing empty shelves, and what is available is marked up a lot. The CPI here is for December and doesn’t yet reflect the prices in January.

Also note how price increases are creeping back into other categories, including beef, from already very high levels.

	MoM	YoY
Food at home	0.3%	1.8%
Cereals, breads, bakery products	1.2%	0.8%
Beef and veal	0.5%	4.9%
Pork	0.3%	1.8%
Poultry	0.1%	1.0%
Fish and seafood	0.8%	-0.7%
Eggs	3.2%	36.8%
Dairy and related products	0.2%	1.3%
Fresh fruits	-1.1%	-0.2%
Fresh vegetables	0.8%	3.1%
Juices and nonalcoholic drinks	-0.8%	1.8%
Coffee, tea, etc.	0.8%	3.5%
Fats and oils	-0.6%	0.4%
Baby food & formula	0.4%	2.1%
Alcoholic beverages at home	0.1%	1.0%

Apparel and footwear.

The CPI for apparel and footwear inched up by 0.1% in December from November and by 1.2% year-over-year.

Apparel and footwear are components of nondurable goods, along with food, gasoline, household supplies, personal care items, etc.

Energy.

The CPI for energy, which covers energy products and services that consumers buy and pay for directly, jumped by 2.6% in December from November, which further whittled down the year-over-year decline to just 0.5%.

CPI for Energy, by Category	MoM	YoY
Overall Energy CPI	2.6%	-0.5%
Gasoline	4.4%	-3.4%
Electricity service	0.3%	2.8%
Utility natural gas to home	2.4%	4.9%
Heating oil, propane, kerosene, firewood	2.6%	-6.0%

The CPI for gasoline makes up about half of the energy CPI. It jumped 4.4% in December from November, seasonally adjusted, which whittled down the year-over-year decline to 3.4%.

Compared to the peak in the summer of 2022, gasoline prices plunged by 29% seasonally adjusted (red), and by 37% not seasonally adjusted (blue).

The plunge in gasoline prices off the mid-2022 peak had been a big factor in the deceleration of the overall CPI.

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