U.S. December Consumer Price Index Report (Text)

Following is the text of the Dec. consumer prices from the Labor Department.

Consumer Price Index - December 2010

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.

The energy index increased in December. The gasoline index rose sharply and accounted for about 80 percent of the all items seasonally adjusted increase. The household energy index, which declined in November, increased as well. The food index increased slightly in December, with the fruits and vegetables index rising notably.

The index for all items less food and energy also rose in December. An increase in the shelter index accounted for about 60 percent of the rise, and the indexes for airline fares, medical care and apparel rose as well. These increases more than offset declines in the indexes for communication, recreation, and household furnishings and operations.

Year in Review

The rate of increase in the CPI slowed in 2010 as the December to December increase fell from 2.7 percent in 2009 to 1.5 percent in 2010. A deceleration in the gasoline index accounted for much of the slowdown, as it increased 13.8 percent in 2010 after rising 53.5 percent in 2009. The index for household energy, which declined in 2009, rose 0.8 percent in 2010 as increases in the indexes for fuel oil and electricity more than offset a decline in the natural gas index. The energy index as a whole, which rose 18.2 percent in 2009, increased 7.7 percent in 2010.

The index for all items less food and energy also decelerated in 2010. After rising 1.8 percent in both 2008 and 2009, the index increased 0.8 percent in 2010, the smallest December-December increase in the history of the index. Several indexes turned down in 2010. These include the new vehicles index, which fell 0.2 percent in 2010 after rising 4.9 percent in 2009, and the index for apparel, which fell 1.1 percent in 2010 after a 1.9 percent increase in 2009. The indexes for recreation and household furnishings and operations, which both declined in 2009, posted larger decreases in 2010. The indexes for tobacco and for used cars and trucks rose in 2010, but at a slower rate than the previous year. The shelter and medical care indexes posted increases in 2010 similar to their 2009 figures. One of the few indexes to accelerate was the airline fares index, which rose 5.8 percent in 2010 after rising 4.3 percent in 2009.

The food index turned up in 2010, rising 1.5 percent after declining 0.5 percent in 2009. The index for food away from home rose 1.3 percent; the food at home index increased 1.7 percent after declining 2.4 percent in 2009. Among major grocery store food groups, the index for meats, poultry, fish and eggs posted the largest increase at 5.5 percent followed by a 3.7 percent increase in the dairy index. The indexes for nonalcoholic beverages and cereals and bakery products were the only ones to decline.

Consumer Price Index Data for December 2010

Food

The food index rose 0.1 percent in December after a 0.2 percent increase in November. The indexes for food away from home and food at home both rose 0.1 percent. Within the latter group, the fruits and vegetables index rose 1.8 percent after declining in November. The index for fresh fruits rose 3.4 percent, its fourth consecutive monthly increase. The indexes for cereals and bakery products, dairy and related products, and other food at home also increased in December. In contrast, the index for nonalcoholic beverages fell 1.3 percent in December and the index for meats, poultry, fish and eggs fell 0.4 percent.

Energy

The energy index, which rose 0.2 percent in November, increased 4.6 percent in December. The gasoline index rose 8.5 percent in December, the sixth consecutive increase. (Before seasonal adjustment, gasoline prices rose 4.5 percent in December.) The index for household energy also increased in December, rising 0.8 percent after declining 0.4 percent in November. The index for fuel oil increased 4.9 percent, and the indexes for natural gas and electricity rose 1.4 percent and 0.3 percent, respectively.

All items less food and energy

The index for all items less food and energy rose 0.1 percent in December, the same increase as last month. The index for shelter rose 0.1 percent for the third month in a row. The rent index rose 0.2 percent while the index for owners' equivalent rent increased 0.1 percent. The index for lodging away from home turned up in December, rising 1.3 percent after falling 1.2 percent in November. The index for airline fares continued to rise in December, increasing 3.3 percent after a 3.0 percent advance in November. The index for medical care rose 0.2 percent in December. The index for medical care commodities rose 0.1 percent while the index for medical care services increased 0.3 percent with the hospital services index rising 0.8 percent. The index for apparel rose 0.1 percent in December, and the tobacco index increased 0.8 percent after declining in each of the two previous months. The index for new vehicles was unchanged in December after declining in November while the used cars and trucks index fell 0.1 percent, its fourth consecutive decline. Also falling in December were the indexes for recreation (down 0.2 percent), communication (down 0.6 percent), and household furnishings and operations (down 0.1 percent).

Not seasonally adjusted CPI measures

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.5 percent over the last 12 months to an index level of 219.179 (1982-84=100). For the month, the index increased 0.2 percent prior to seasonal adjustment.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.7 percent over the last 12 months to an index level of 215.262 (1982-84=100). For the month, the index rose 0.2 percent prior to seasonal adjustment.

The Chained Consumer Price Index for All Urban Consumers (C-CPI- U) increased 1.4 percent over the last 12 months. For the month, the index increased 0.2 percent on a not seasonally adjusted basis. Please note that the indexes for the post-2008 period are subject to revision.

The Consumer Price Index for January 2011 is scheduled to be released on Thursday, February 17, 2011, at 8:30 a.m. (EST).

--------------------------------------------------------------- Effective with the release of CPI data for January 2011 scheduled for Thursday, February 17, 2011, the following series will be re-titled: Recreation services will become Other recreation services Gas (piped) and electricity will become Energy services Canned fish and seafood will become Shelf stable fish and seafood

The Recreation services index does not include all services under the major group Recreation, specifically video and audio related services, pet services, and photography and film services are excluded. The new title, Other recreation services, will reflect these exclusions.

Gas (piped) and electricity has been presented as Energy services in Table A of the CPI News Release since August 2009. At that time, the format text of the News Release was updated to focus on Food, Energy, and All items less food and energy instead of the major groups (Food, Housing, Apparel, Transportation, Medical care, Education and communication, Recreation, and Other goods and services). The title will be changed in the remainder of the publication tables in January 2011 to improve consistency.

The title for Canned fish and seafood will change to Shelf stable fish and seafood to better reflect current packaging methods.

Brief Explanation of the CPI

The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) and the Chained CPI for All Urban Consumers (C- CPI-U), which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, and retirees and others not in the labor force.

The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 87 urban areas across the country from about 4,000 housing units and approximately 25,000 retail establishments-department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls of the Bureau's trained representatives.

In calculating the index, price changes for the various items in each location are averaged together with weights, which represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average. For the CPI-U and CPI-W separate indexes are also published by size of city, by region of the country, for cross- classifications of regions and population-size classes, and for 27 local areas. Area indexes do not measure differences in the level of prices among cities; they only measure the average change in prices for each area since the base period. For the C- CPI-U data are issued only at the national level. It is important to note that the CPI-U and CPI-W are considered final when released, but the C-CPI-U is issued in preliminary form and subject to two annual revisions.

The index measures price change from a designed reference date. For the CPI-U and the CPI-W the reference base is 1982-84 equals 100.0. The reference base for the C-CPI-U is December 1999 equals 100. An increase of 16.5 percent from the reference base, for example, is shown as 116.5. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to $11.65.

Note on Sampling Error in the Consumer Price Index

The CPI is a statistical estimate that is subject to sampling error because it is based upon a sample of retail prices and not the complete universe of all prices. BLS calculates and publishes estimates of the 1-month, 2-month, 6-month and 12- month percent change standard errors annually, for the CPI-U. These standard error estimates can be used to construct confidence intervals for hypothesis testing. For example, the estimated standard error of the 1 month percent change is 0.04 percent for the U.S. All Items Consumer Price Index. This means that if we repeatedly sample from the universe of all retail prices using the same methodology, and estimate a percentage change for each sample, then 95% of these estimates would be within 0.08 percent of the 1 month percentage change based on all retail prices. For example, for a 1-month change of 0.2 percent in the All Items CPI for All Urban Consumers, we are 95 percent confident that the actual percent change based on all retail prices would fall between 0.12 and 0.28 percent. For the latest data, including information on how to use the estimates of standard error, see "Variance Estimates for Price Changes in the Consumer Price Index, January-December 2009". These data are available on the CPI home page (http://www.bls.gov/cpi), or by using the following link http://www.bls.gov/cpi/cpivar2009.pdf

Calculating Index Changes

Movements of the indexes from one month to another are usually expressed as percent changes rather than changes in index points, because index point changes are affected by the level of the index in relation to its base period while percent changes are not. The example below illustrates the computation of index point and percent changes.

Percent changes for 3-month and 6-month periods are expressed as annual rates and are computed according to the standard formula for compound growth rates. These data indicate what the percent change would be if the current rate were maintained for a 12- month period.

Index Point Change

CPI 202.416 Less previous index

201.8 Equals index point change

0.616

Percent Change

Index point difference 0.616 Divided by the previous index 201.8 Equals 0.003 Results multiplied by one hundred 0.003x100 Equals percent change 0.3

Regions Defined

The states in the four regions shown in Tables 3 and 6 are listed below.

The Northeast- Connecticut, Maine, Massachusetts, New Hampshire, New York, New Jersey, Pennsylvania, Rhode Island, and Vermont. The Midwest- Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. The South--Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia, and the District of Columbia. The West--Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

A Note on Seasonally Adjusted and Unadjusted Data

Because price data are used for different purposes by different groups, the Bureau of Labor Statistics publishes seasonally adjusted as well as unadjusted changes each month.

For analyzing general price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year--such as price movements resulting from changing climatic conditions, production cycles, model changeovers, holidays, and sales.

The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data also are used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before adjustment for seasonal variation.

Seasonal factors used in computing the seasonally adjusted indexes are derived by the X-12-ARIMA Seasonal Adjustment Method. Seasonally adjusted indexes and seasonal factors are computed annually. Each year, the last 5 years of seasonally adjusted data are revised. Data from January 2005 through December 2009 were replaced in January 2010. Exceptions to the usual revision schedule were: the updated seasonal data at the end of 1977 replaced data from 1967 through 1977; and, in January 2002, dependently seasonally adjusted series were revised for January 1987-December 2001 as a result of a change in the aggregation weights for dependently adjusted series. For further information, please see "Aggregation of Dependently Adjusted Seasonally Adjusted Series," in the October 2001 issue of the CPI Detailed Report.

The seasonal movement of all items and 54 other aggregations is derived by combining the seasonal movement of 73 selected components. Each year the seasonal status of every series is reevaluated based upon certain statistical criteria. If any of the 73 components change their seasonal adjustment status from seasonally adjusted to not seasonally adjusted, not seasonally adjusted data will be used in the aggregation of the dependent series for the last 5 years, but the seasonally adjusted indexes will be used before that period. Note: 46 of the 73 components are seasonally adjusted for 2010.

Seasonally adjusted data, including the all items index levels, are subject to revision for up to five years after their original release. For this reason, BLS advises against the use of these data in escalation agreements.

Effective with the calculation of the seasonal factors for 1990, the Bureau of Labor Statistics has used an enhanced seasonal adjustment procedure called Intervention Analysis Seasonal Adjustment for some CPI series. Intervention Analysis Seasonal Adjustment allows for better estimates of seasonally adjusted data. Extreme values and/or sharp movements which might distort the seasonal pattern are estimated and removed from the data prior to calculation of seasonal factors. Beginning with the calculation of seasonal factors for 1996, X-12-ARIMA software was used for Intervention Analysis Seasonal Adjustment.

For the seasonal factors introduced in January 2010, BLS adjusted 30 series using Intervention Analysis Seasonal Adjustment, including selected food and beverage items, motor fuels, electricity and vehicles. For example, this procedure was used for the Motor fuel series to offset the effects of events such as damage to oil refineries from Hurricane Katrina.

For a complete list of Intervention Analysis Seasonal Adjustment series and explanations, please refer to the article "Intervention Analysis Seasonal Adjustment", located on our website at http://www.bls.gov/cpi/cpisapage.htm.

For additional information on seasonal adjustment in the CPI, please write to the Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes, Washington, DC 20212 or contact David Levin at (202) 691-6968, or by e-mail at Levin.David@bls.gov If you have general questions about the CPI, please call our information staff at (202) 691-7000.

Recalculated Seasonally Adjusted Indexes to be Available on February 15, 2011

Each year with the release of the January CPI, seasonal adjustment factors are recalculated to reflect price movements from the just-completed calendar year. This routine annual recalculation may result in revisions to seasonally adjusted indexes for the previous 5 years. BLS will make available recalculated seasonally adjusted indexes, as well as recalculated seasonal adjustment factors, for the period January 2006 through December 2010, on Tuesday, February 15, 2011. This date is two working days before the scheduled release of the January 2011 CPI on Thursday, February 17, 2011.

The revised indexes and seasonal factors will be available on the internet. The address is http://www.bls.gov/cpi/cpisapage.htm. Look under Seasonal Adjustment in the CPI and select Revised Seasonally Adjusted Indexes and Factors, 2006-2010.

For further information please contact David Levin by electronic mail at: Levin.David@bls.gov or by telephone at: (202) 691-5261.

To contact the reporter on this story: Kristy Scheuble in Washington kmckeaney@bloomberg.net

To contact the editor responsible for this story: Marco Babic at mbabic@bloomberg.net

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