Econoday Report: Consumer Price Index 15, 2005

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Consumer Price Index

Definition
The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care

Released on 9/15/05 For Aug 2005

CPI, M/M change
Actual	0.5%
Consensus	0.5%
Consensus Range	0.4% to 0.6%

CPI less food & energy, M/M change
Actual	0.1%
Consensus	0.2%
Consensus Range	0.1% to 0.3%

Highlights
The consumer price index increased 0.5 percent in August for the second straight month. This was in line with expectations. Energy prices jumped 5 percent for the month, more than last month's 3.8 percent hike. This was slightly more than the energy price hike in the PPI, but it isn't unusual to see such discrepancies from time to time. Keep in mind that the CPI prices goods and services throughout the month --through the last day of the month -- while the PPI only prices at mid-month. The CPI would therefore have the latest gas price hikes post-Katrina at the end of the month.

Excluding food and energy, the CPI increased 0.1 percent for the fourth straight month. This was also in line with expectations as price increases among the key components was generally modest. Housing costs increased 0.2 percent, medical care costs were unchanged for the month, recreation prices rose 0.3 percent, education & communication costs fell 0.1 percent and other goods and services inched up 0.2 percent. Apparel & upkeep jumped 1 percent, but this followed two large monthly declines. Transportation costs jumped 2.2 percent, but this included higher energy costs. Motor vehicle prices were unchanged and public transportation costs increased only 0.2 percent.

On the whole, the CPI was in line with expectations and relatively benign. However, this largely reflects inflation before Katrina. Economists and the Fed are expecting the CPI to accelerate in coming months. On a year-over-year basis, the total CPI was up 3.6 percent; excluding food and energy, the CPI was 2.1 percent higher than last August.

Market Consensus Before Announcement
The consumer price index rose 0.5 percent in July due primarily to a 3.8 percent spurt in energy prices. Excluding food and energy, the CPI rose 0.1 percent for the month. Energy prices will be up sharply in August as well. Keep in mind that while the PPI mostly covers mid-month prices, the CPI covers prices throughout the month, through the last day! We will see some Katrina impacts here.

CPI Consensus Forecast for Aug 05: 0.5 percent
Range: 0.4 to 0.6 percent

CPI ex food & energy Consensus Forecast for Aug 05: 0.2 percent
Range: 0.1 to 0.3 percent

Trends

It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations.

Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI.

Data Source: Haver Analytics

2005 Release Schedule

Released On: 1/19 2/23 3/23 4/20 5/18 6/15 7/14 8/16 9/15 10/14 11/16 12/15

Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov