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April, 2000, Vol. 123, No. 4
Core consumer prices in 1999: low by historical standardsTodd Wilson
The Consumer Price Index for All Urban Consumers (CPI-U) for All Items for the U.S. city average increased 2.7 percent in 1999, up from a 1.6-precent rise during the prior year.1 The acceleration mainly reflects higher gasoline prices. The CPI-U excluding food and energy prices (often called the core CPI-U) increased only 1.9 percent, the smallest rise since 1965.2
Commodities less food and energy prices remained nearly unchanged, rising only 0.2 percent in 1999, the lowest increase since 1960, following a 1.3-percent increase in 1998. Lower prices were reported for many different commodities-computers, new vehicles, clothing and household appliances, to name a few. Commodities generally are subject to greater global competition than are services; therefore, prices for these items tend to increase less than prices for services. Prices for all commodities including food and energy increased 2.7 percent. Charges for durables decreased 1.2 percent, and charges for nondurables increased 4.1 percent. Services fees rose 2.6 percent, the same as during the prior year. (See table 1.)
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1 Annual percent changes are calculated from December to December unless otherwise noted.
2 Economists often exclude food and energy price movements when evaluating the underlying or "core" level of inflation. Food and energy price movements tend to be relatively volatile in the short-to-intermediate terms, making only transitory impacts on the All Items CPI. Large rises in these prices are often followed by large decreases, and vice versa. Volatility in food and energy price movements such as that caused by unusual weather conditions, is generally self-correcting. Inclement weather often leads to temporary food shortages and temporarily increased demand for household fuels. Sustained shifts in food and energy prices, of course, will affect overall inflation.
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