Home Economic Trends Gasoline Offsets Food and Apparel in February EPI – Robert Hughes (03/13/2020)

Gasoline Offsets Food and Apparel in February EPI – Robert Hughes (03/13/2020)

AIER’s Everyday Price Index fell 0.2 percent in February after posting a 0.3 percent increase in January. The Everyday Price index has been flat or down in six of the last nine months. The Everyday Price Index measures price changes people see in everyday purchases such as groceries, restaurant meals, gasoline, and utilities. It excludes prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and prices contractually fixed for prolonged periods (such as housing).

The Everyday Price Index including apparel, a broader measure that includes clothing and shoes, was unchanged in February after a 0.4 percent rise in January. The Everyday Price Index including Apparel has been flat or down in five of the past nine months. Apparel prices rose 3.0 percent on a not-seasonally-adjusted basis in February but are down 0.9 percent over the past year. Apparel prices tend to be volatile, registering sporadic large gains or declines in between stretches of relatively steady prices.

The Consumer Price Index, which includes everyday purchases as well as infrequently purchased, big-ticket items and contractually fixed items, rose 0.3 percent in February. The Everyday Price Index is not seasonally adjusted, so we compare it with the unadjusted Consumer Price Index.

Over the past year, the Consumer Price Index is up 2.3 percent. Over the same period, the Everyday Price Index has risen 2.1 percent while the Everyday Price Index including apparel is up 1.8 percent. The modest increases in both indexes over the past year are largely due to weak energy and grocery store prices.

Motor fuel prices fell 3.8 percent for the month on a not-seasonally-adjusted basis. Over the past year, motor fuel prices are up 5.5 percent. Motor fuel prices are largely a function of crude oil prices. West Texas Intermediate crude oil prices fluctuated dramatically from mid-2017 through mid-2019, rising to a peak above $75 per barrel in October 2018 before plunging to less than $45 by December 2018, then recovering to around $65 by mid-2019.  More recently, crude oil prices were drifting higher until early January, hitting a peak just above $63.  Since early January, prices have plummeted to less than $35 as the outbreak of COVID-19 and tensions among OPEC members have driven prices lower.

For the two major food components, grocery prices rose 0.4 percent in February and are up just 0.8 percent from a year ago while restaurant prices increased 0.2 percent for the month but are up a robust 3.0 percent over the past year. Over the last five years, grocery prices are essentially unchanged, rising at an annualized 0.1 percent while restaurant prices are up at an annual rate of 2.7 percent, making restaurants the largest contributor to the EPI over the last five years.

Overall, changes in the Everyday Price Index have been accelerating but remain modest. Energy prices are the most volatile component and, given the plunge in crude oil prices recently, are likely to be a negative contributor in coming months. Grocery prices (food at home) have been rising at a slow pace and stand in sharp contrast to restaurant prices (food away from home) which have been rising more quickly and persistently. Apparel prices also remain volatile but in general have been a negative contributor. One other trend that is noticeable is the persistent decline in categories of goods that are undergoing structural change: video and audio tapes and discs, off 9.0 percent and 4.8 percent over the past year, respectively. These are being replaced by streaming services. Conversely, cable and satellite services prices were up 3.3 percent over the past year. Other notable gains over the past year include recreational reading material, tobacco products, postage and delivery services, and personal care services.