December 1994 Consumer Price Index

Historical release narrative reproduced from the official public-domain source. Statistical tables, standard technical appendices, administrative material and attendance rosters are omitted; formatting is adapted for reading. Figures retain the release's historical context and may have been revised. Consult the linked source for the complete document.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged prior to seasonal adjustment in December, remaining at a level of 149.7 (1982-84=100), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. For the 12-month period ended in December, the CPI-U increased 2.7 percent.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) declined 0.1 percent in December, prior to seasonal adjustment. The December 1994 CPI-W level of 147.2 was 2.7 percent higher than the index in December 1993.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U rose 0.2 percent in December, following increases of 0.1 and 0.3 percent in the 2 preceding months. In December, the index for food advanced 1.0 percent, largely as a result of a sharp rise in prices for fresh fruits and vegetables. The energy index continued to exhibit the volatility which has characterized its behavior in 1994, declining 0.3 percent in December after increasing 0.7 percent in November. The CPI-U excluding food and energy increased 0.1 percent in December, its smallest advance since a similar rise in January 1994.

For the 12-month period ended in December 1994, the CPI-U advanced 2.7 percent, the same as in 1993 and the fourth consecutive year in which the rise has been close to 3.0 percent. The food index rose 2.9 percent for the second consecutive year, with sharp increases in prices for coffee and fresh fruits and vegetables partially offset by a decline in meat prices. The energy index turned up in 1994, advancing 2.2 percent, following a 1.4 percent drop in 1993. Petroleum-based energy costs rose 5.2 percent, more than offsetting a 0.6 percent decline in charges for energy services.

The CPI-U excluding food and energy continued the deceleration evident in this index since 1990. The 2.6 percent rise in 1994 followed an increase of 3.2 percent in 1993 and was the smallest advance in the index since a 1.5 percent increase in 1965. The further deceleration in 1994 reflects a decline in the index for apparel and upkeep and continued moderation in the index for medical care. The rates for selected groups during the past 9 years are shown below.

Percent change, 12 months ended in December

The food and beverage index rose 0.9 percent in December to a level 2.7 percent above a year ago. Grocery store food prices increased 3.5 percent in 1994, the same as in 1993. The 1.5 percent increase in December reflects a sharp increase in fruit and vegetable prices, which more than offset an aggregate decline in other grocery store food prices. The index for fresh fruits and vegetables, reflecting in part the effects of tropical storm Gordon on the Southeastern United States, rose 11.6 percent in December. Over the past 12 months, those prices rose 11.9 percent and accounted for about 45 percent of the increase in the grocery store food index. Prices for processed fruits and vegetables increased 0.6 percent in December and 0.5 percent during the past 12 months. In December, the index for cereal and bakery products rose 0.2 percent, while the indexes for meats, poultry, fish, and eggs, for dairy products, and for other food at home each declined. The index for meats, poultry, fish, and eggs, which increased 3.8 percent in 1993, declined 0.5 percent in 1994. During the past 12 months, prices for beef, pork, and poultry declined 2.2, 2.3, and 0.5 percent, respectively. The indexes for cereal and bakery products and dairy products rose 3.3 and 1.1 percent, respectively, in 1994. The index for other food at home, which fell slightly in December, increased 6.0 percent in 1994, largely as a result of the sharp rise in coffee prices earlier this year. Coffee prices jumped up 55.4 percent during the 12 months ended in December and accounted for almost one-third of the overall grocery store food increase in 1994. The other two components of the food and beverage index--restaurant meals and alcoholic beverages--rose 0.3 percent and 0.2 percent, respectively, in December. The 1.9 percent advance in prices for restaurant meals in the past 12 months was the same as in 1993. The 1.0 percent rise in prices for alcoholic beverages was the smallest annual increase in this component since a 0.5 percent rise in 1964.

The housing component declined 0.1 percent in December, following an increase of 0.3 percent in November. Shelter costs, which increased 0.3 percent in November, were unchanged in December. Within shelter, renters' costs declined 0.2 percent, homeowners' costs were unchanged, and maintenance and repair costs rose 1.1 percent. The decrease in renters' costs reflects a 1.0 percent drop in the index for lodging while out of town; residential rents rose 0.1 percent. Shelter costs rose 3.0 percent in 1994, with renters' costs up 2.3 percent and homeowners' costs increasing 3.3 percent. The index for fuel and other utilities turned back down in December, declining 0.3 percent after registering a 0.5 percent increase in November. The index for household fuels fell 0.6 percent, reflecting decreases in the indexes for each of the three major fuels. The index for fuel oil declined 0.1 percent in December to a level unchanged from a year earlier. The indexes for natural gas and electricity fell 1.5 and 0.3 percent, respectively. (Prior to seasonal adjustment, charges for natural gas rose 0.7 percent.) For the 12 months ended in December, charges for natural gas fell 3.2 percent, while those for electricity rose 0.6 percent. The index for other utilities and public services rose 0.1 percent in December, reflecting increases in the indexes for water and sewerage maintenance, refuse collection, and cable television. Despite increases of 0.4 percent in both November and December, the index for cable television declined 2.6 percent in 1994. The index for household furnishings and operation, which fell 0.1 percent in December, increased 0.4 percent in 1994.

The transportation index increased 0.3 percent in December. The index for gasoline was unchanged in December. (See the note on page 6, which explains the quality adjustment made to gasoline prices in the December CPI.) In the 12 months ended in December 1994, gasoline prices have increased 6.4 percent. Despite this advance, gasoline prices are 14.4 percent lower than their peak level in December 1990. The index for new vehicles was unchanged. (Prior to seasonal adjustment, new vehicle prices rose 0.5 percent in December. As of December, the proportion of 1995 models in the index was about 70 percent of the new car sample.) Automobile finance charges continued to increase in December, advancing 3.8 percent last month and 23.0 percent in all of 1994. Used car prices also continued to rise sharply, advancing 2.0 percent in December and 8.8 percent in 1994. The index for public transportation registered its fourth consecutive monthly decline in December--reflecting another drop in airline fares. The index for airline fares fell 3.8 percent in December and has declined 9.5 percent in 1994 after advancing 17.0 percent in 1993.

The index for apparel and upkeep, which fell 0.2 percent in December, declined for the sixth consecutive month. Holiday discounting was prevalent in December, and indeed throughout the past 6 months the proportion of clothing items with discounts has been markedly greater than in preceding years. (Prior to seasonal adjustment, clothing prices fell 3.0 percent in December.)

Medical care costs rose 0.6 percent in December to a level 4.9 percent higher than a year earlier. This continues the moderation in this index since 1990 and was the smallest advance in this component since a 3.3 percent rise in 1972, when price controls were in effect. The index for medical care commodities-- prescription drugs, nonprescription drugs, and medical supplies-- was unchanged in December, but increased 3.0 percent during the past 12 months. The index for medical care services rose 0.6 percent in December and 5.4 percent over the year. Charges for professional services and hospital and related services increased 4.6 and 5.5 percent, respectively, in 1994.

Entertainment costs declined 0.1 percent in December, but advanced 2.3 percent during the past 12 months. In December, small increases in the indexes for reading materials and admissions to movies, theaters, concerts, and sporting events were more than offset by price declines for toys and sporting goods and equipment, and for fees for club memberships and for lessons and instructions.

The index for other goods and services rose 0.2 percent in December to a level 4.2 percent above a year ago. In 1994, the costs for personal financial services rose 7.8 percent, college tuition costs, 6.3 percent, and prices for tobacco and smoking products, 3.0 percent.

CPI for Urban Wage Earners and Clerical Workers (CPI-W)

On a seasonally adjusted basis, the CPI for Urban Wage Earners and Clerical Workers also rose 0.2 percent in December.

QUALITY ADJUSTMENT FOR GASOLINE

A quality adjustment has been made to gasoline prices used in the December CPI to account for the effects of the mandated introduction of reformulated gasoline in selected areas of the United States. The gasoline index was unchanged in December, following seasonal adjustment. Without the quality adjustment, it is estimated that this index would have increased 0.9 percent. In those area required to sell the reformulated gasoline, approximately 55 percent of the December price quotes were for reformulated gasoline.

CPI ANNOUNCEMENT

Effective with the release of data for January 1995, on February 15, the Bureau of Labor Statistics will introduce several technical improvements in the calculation of the Consumer Price Index designed to make the index a more accurate measure of price change. These improvements, which stem from findings of research conducted by BLS staff, will affect the food at home, shelter, and prescription drug components of the CPI.

The change to the food at home component improves the outlet sample rotation process. (Approximately 20 percent of CPI outlet samples are updated annually.) Empirical evidence has established that current procedures for the routine introduction of new samples tend to overstate price change for the newly sampled items immediately following their introduction. Since the food at home component of the index is particularly sensitive to this effect, new measures designed to lessen its impact will be used in the calculation of the food at home component beginning with January 1995 data.

In addition, two changes are being made in the way in which the shelter component of the CPI is calculated. First, the imputation formula for estimating owners' equivalent rent, which relies upon a matching of a sample of residential rental units to a sample of homeowner units, will be improved. Second, additional BLS research has indicated that current procedures, both for residential rent and for owners' implicit rent, tend to understate the short-term rent change. Beginning with data for January 1995, BLS will incorporate an improved estimate. Research on this issue will continue during the course of the upcoming CPI revision, and, if this research yields further improvements in the estimates of rent changes, they will be incorporated into the index as part of the revision effort.

Finally, the procedure for handling the introduction into the index of generic versions of formerly patented drugs into the index will be changed. The current practice of directly comparing the prices of patented and generic drugs only when the patented drug is no longer available in the sampled outlet will be changed. A new procedure, which will reflect the rate at which consumers switch their purchases from patented to generic versions of a drug, will be employed beginning with CPI data for January 1995.

The basic research papers on these topics are available from the BLS by calling 202-606-7000. These changes are explained more fully in the CPI Detailed Report for October 1994.