Uptick was led by a 1% rise in commodity prices, while services are nearly flat.

By Manuel Gutierrez, Consulting Economist to NKBA

Consumer prices showed an uptick of 0.4% in December, the fastest growth in five months. However, as seen in Figure 1, that increase was not as high as what occurred in the mid-summer months of June and July, when prices recovered sharply from the collapse of demand during the first wave of pandemic shutdowns.

December’s increase was driven by a nearly 1% rise in the price of commodities, while the price for services barely moved, up just 0.1% for the month.

The government’s shutdown of businesses with higher consumer contact, such as restaurants, caused the prices for services to drop. Another factor underlying the more modest price uptick for services is the current aversion  many consumers have to flying or to going on vacations involving a hotel stay.

On an annual basis though, prices for services have been rising faster than for commodities. In fact, Figure 2 shows that annual price inflation for that group has exceeded that of commodities over the last five years. The numbers at the right of the chart reflect inflation for the latest 12-month period. Overall Inflation for the five-year period from December 2015 through the end of 2020 has averaged 1.8% annually.

Commodities inflation in Figure 2 averaged  0.3% annually over the last five years, while services inflation has ranged between 2% and 3% for most of this period, with an annual average of 2.6%. Note, as the chart indicates, only since the middle of last year has annual inflation for services fallen below 2%.

Figure 3 provides a side-by-side comparison of monthly (November vs. December) and annual inflation changes for a number of commodities and services purchased by consumers. They are listed alphabetically for easier category identification.

It is clear that the largest price increases in December were for Energy, up 4% over the previous month, although despite the increase, Energy price costs to consumers are still 7.3% lower than a year earlier. This is mostly the result of lower prices at the pump. The CPI for gasoline is down a significant 15% over the past year.

The price increase for Financial Services is the second highest among all items, up  2.8% higher in December, but virtually the same as it was a year earlier. In December 2020, the average price of Financial Services was just 0.1% higher than it was in December 2019.

Figure 3 lists only one  category related to the kitchen and bath industry, Household Windows & Flooring. It shows a 2.3% decline over the previous month, which is the largest among all products and services listed.

On an annual basis, the right panel of Figure 3 shows prices for Household Windows and Flooring at 1.8% below a year ago.

Figure 4 shows the trend in prices for these two products over the last five years. It demonstrates that throughout 2020, prices for Windows were rising (the blue line) while those for Flooring were more even, but still falling (the red line).