December 1999 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 in December, before seasonal adjustment, remaining at a level of 168.3 (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) also was unchanged in December, prior to seasonal adjustment. The December level of 165.1 was 2.7 percent higher than the index in December 1998.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U rose 0.2 percent in December, following a 0.1 percent increase in November. The food index rose 0.1 percent in December, the same as in November. The energy index, which was unchanged in November, rose 1.4 percent in December. The index for petroleum-based energy increased 4.1 percent, while the index for energy services declined 1.1 percent. Excluding food and energy, the CPI- U rose 0.1 percent in December, following an increase of 0.2 percent in November; the moderation reflects a smaller increase in shelter costs.

See page 5 for a note on the use of hedonic models to adjust prices of audio and video products in the CPI for changes in quality.

Consumer prices rose at a seasonally adjusted annual rate (SAAR) of 2.2 percent in the fourth quarter. This followed increases in the first three quarters at rates of 1.5, 2.9, and 4.2 percent, respectively. For the 12 month period ended in December, the CPI-U rose 2.7 percent. This compares with an increase of 1.6 percent for all of 1998. The acceleration in 1999 reflects an upturn in petroleum-based energy prices. The energy index, which declined 8.8 percent in 1998, increased 13.4 percent in 1999. Following a 15.1 percent decline in 1998, petroleum- based energy costs increased 29.5 percent in 1999, its largest annual advance since a 35.4 percent increase in 1990. Charges for energy services rose 1.2 percent in 1999. The food index rose 1.9 percent in 1999, following a 2.3 percent increase for all of 1998. Grocery store food prices, which advanced 2.1 percent in 1998, increased 1.7 percent in 1999. Smaller increases in the indexes for dairy products and for fruits and vegetables more than offset an upturn in the index for meats, poultry, fish, and eggs.

Excluding food and energy, the CPI-U advanced at a 2.0 percent SAAR in the fourth quarter, following increases at rates of 0.9, 2.3, and 2.5 percent, respectively, in the first three quarters of 1999. The 1.9 percent rise for all of 1999 was the smallest annual change since a 1.5 percent increase in 1965. Deceleration in the indexes for shelter and for tobacco and smoking products were largely responsible for the smaller advance in 1999. The rates for selected groups for the last six years are shown below.

Percentage change 12 months ended in December

The food and beverages index rose 0.1 percent in December. The index for food at home also increased 0.1 percent, the same as in November. While the monthly changes in the overall food at home index were the same, the compositions were notably different. The indexes for nonalcoholic beverages, for fruits and vegetables, and for cereal and bakery products each turned up in December, whereas the indexes for each of the other three major grocery store food groups--for dairy products, for meats, poultry, fish, and eggs, and for other food at home--turned down. The index for nonalcoholic beverages increased 1.1 percent in December after declining 0.2 percent in November. The index for fruits and vegetables, which declined 0.7 percent in November, increased 0.7 percent in December. Within the fruits and vegetables group, the index for fresh fruits was unchanged, while the index for fresh vegetables increased 2.6 percent. (Prior to seasonal adjustment, fresh fruit prices increased 2.5 percent, and fresh vegetable prices rose 2.3 percent.) For the second consecutive month, the index for processed fruits and vegetables fell 1.0 percent. The index for cereal and bakery products rose 0.6 percent, following a 0.1 percent decline in November. On the other hand, the index for dairy products fell 1.5 percent, its first decrease in five months. The indexes for meats, poultry, fish, and eggs and for other food at home declined 0.3 and 0.1 percent, respectively. Within the former group, increases in prices for beef and pork--up 0.7 and 0.6 percent, respectively--were more than offset by declines in prices for poultry, fish, and eggs. The other two components of the food and beverages index--food away from home and alcoholic beverages--increased 0.2 and 0.3 percent, respectively.

The index for housing rose 0.1 percent in December, following an increase of 0.3 percent in November. Each of the three major housing groups--shelter, fuel and utilities, and household furnishings and operations--contributed to the deceleration. Shelter costs, which advanced 0.3 percent in November, increased 0.2 percent in December. Within shelter, the indexes for rent and for owners' equivalent rent increased 0.4 and 0.2 percent, respectively, while the index for lodging away from home declined 0.9 percent. The index for fuels and utilities declined 0.5 percent in December, following a 0.4 percent increase in November. The index for natural gas, which rose 2.2 percent in November, declined 4.2 percent in December. This decrease more than offset increases in the indexes for fuel oil and for electricity--up 5.9 and 0.2 percent, respectively. Fuel oil prices, which declined 15.2 percent in 1998, increased 30.9 percent in 1999, their largest annual advance since a 62.0 percent rise in 1979. The index for household furnishings and operations, which increased 0.1 percent in November, was unchanged in December.

The transportation component increased 0.7 percent in December and 5.4 percent in all of 1999. Rising gasoline prices were responsible for both the one-month and 12-month increases in transportation costs. The index for gasoline increased 4.1 percent in December, bringing the increase over the last 12 months to 30.1 percent. Despite the sharp advance in the last 12 months, at the end of 1999, gasoline prices were still 6.1 percent lower than their peak level of November 1990. The index for new vehicles declined 0.1 percent in December. (Prior to seasonal adjustment, new vehicle prices rose 0.3 percent. As of December, about 73 percent of the new vehicle sample was represented by 2000 models. The 2000 models will continue to be phased in, with appropriate adjustments for quality change, over the next several months as they replace old models at dealerships. For a report on quality changes for the 2000 vehicles represented in the Producer Price Index sample, see news release USDL-99-324, dated November 10, 1999.) The index for used cars and trucks declined 0.7 percent in December. The index for public transportation declined 0.5 percent in December, largely reflecting a 0.7 percent drop in airline fares. During the last 12 months, however, airline fares have increased 10.9 percent.

The index for apparel was unchanged in December. (Prior to seasonal adjustment, apparel prices fell 2.6 percent, reflecting pre-holiday discounting.) During the 12-month period ended in December, apparel prices fell 0.5 percent, following a 0.7 percent decrease in all of 1998.

Medical care costs rose 0.4 percent in December to a level 3.7 percent higher than a year ago. In December, the index for medical care commodities--prescription drugs, nonprescription drugs, and medical supplies--increased 0.2 percent, with the index for prescription drugs up 0.4 percent. Prescription drug prices rose 6.1 percent in all of 1999. The index for medical care services rose 0.4 percent in December. Charges for professional services and for hospital and related services increased 0.2 and 0.8 percent, respectively, in December and 3.2 and 5.1 percent in all of 1999.

The index for recreation costs increased 0.2 percent in December and 0.8 percent in all of 1999. During the last 12 months, increases in recreation services--for admissions to movies, theaters, concerts, and sporting events, for club membership dues, and for fees for lesson or instructions--more than offset declines in prices for toys, for sporting goods, for photography, and for most video and audio items.

The index for education and communication increased 0.2 percent in December and 1.6 percent in all of 1999. During the 12 months ended in December, education costs rose 4.4 percent, while communication costs declined 1.2 percent. In December, educational costs increased 0.4 percent, while the index for communication was unchanged. Within the latter group, the index for personal computers and peripheral equipment registered its first monthly increase--up 0.4 percent--since its inception in December 1997. For the 12 months ended in December, however, this index declined 26.5 percent.

The index for other goods and services advanced 0.2 percent in December, to a level 5.1 percent higher than a year ago, reflecting price increases in miscellaneous personal services. The index for cigarettes declined for the third consecutive month--down 0.3 percent in December-- reflecting discounting of selected major brands. During the past 12 months, however, cigarette prices have risen 11.5 percent. This compares with a 33.7 percent increase in 1998.

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

On a seasonally adjusted basis, the CPI for Urban Wage Earners and Clerical Workers rose 0.3 percent in December.

Consumer Price Index data for January are scheduled for release on Friday, February 18, 2000, at 8:30 A.M. (EST).

Extending the use of hedonic models to adjust prices for Audio and Video Products in the Consumer Price Index for changes in quality

Effective with the release of the Consumer Price Index (CPI) for January 2000, the Bureau of Labor Statistics (BLS) will extend hedonic quality adjustment to items in two CPI strata: Audio equipment and Other video equipment (which contains video equipment other than televisions). A hedonic model decomposes the price of a consumer product into implicit prices for each of its important features and components, thereby providing an estimate of the value of each feature and component. The following table gives the relative importance (share of weight), as of December 1998, of these strata in the Consumer Price Index for all Urban Consumers (the CPI-U) and in the Consumer Price Index for Urban Wage Earners and Clerical Workers (the CPI-W).

There are 12 main audio products in Audio equipment: (1) portable CD players, (2) table CD players, (3) radios, (4) tape recorders, (5) portable radio cassette players, (6) headset stereos, (7) receivers, (8) cassette decks, (9) stereo main speakers, (10) surround speakers, (11) rack systems, and (12) shelf systems. These items account for about 80 percent of the weight of Audio equipment in the CPI-U and 81 percent in the CPI-W. The hedonic models estimated for these products rely on home and portable audio products data that BLS purchased from a secondary source. Items in this index stratum that will not be subject to hedonic quality adjustment at this time are automotive audio equipment and audio accessories and miscellaneous equipment; the data source did not cover them. Detailed information on the work on Audio products is in a paper by Kokoski, Waehrer and Rozaklis available from the BLS. /1

The CPI also will use hedonic quality adjustment for video cameras, which have an estimated 31 percent of the weight within Other video equipment. (Items in this stratum that will not be subject to hedonic quality adjustment at this time include video cassette recorders, digital versatile disc players, satellite dishes and miscellaneous video equipment.) The hedonic models that BLS analysts developed for video cameras use observations collected for the CPI supplemented with additional observations that the BLS collected specifically for this purpose. A paper on this work is in preparation and will be available before the release of the January 2000 CPI.

Additional work on hedonic quality adjustment is underway at BLS. In the future we plan to extend this method to additional CPI items as satisfactory estimates of hedonic models are developed. We will give CPI users notice three months before the first use of each additional model and will have a detailed paper reporting on each model available by the time of its implementation.

or telephone or send electronic mail to Paul Liegey at (202) 691-5394, Liegey_P@bls.gov.

1/ Kokoski, Mary, Keith Waehrer, and Patricia Rozaklis, "Using Hedonic Methods for Quality Adjustment in the CPI: The Consumer Audio Products Component", paper presented at the Conference on the Measurement of Inflation, Cardiff, Wales, September 1, 1999.

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 1995 through December 1999, on Wednesday, February 16, 2000. This date is two working days before the scheduled release of the January 2000 CPI on Friday, February 18, 2000.

The revised indexes and seasonal factors will be available on the internet. The address is http://stats.bls.gov. Select Data, then select FTP Site, then select special requests, then select cpi. The revised seasonal data will be in the file REVSEAS_1999CPI.TXT.

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 unadjusted for seasonal variation.

Seasonal factors used in computing the seasonally adjusted indexes are derived by the X-12-ARIMA Seasonal Adjustment Method. The updated seasonal data at the end of 1977 replaced data from 1967 through 1977. Subsequent annual updates have replaced 5 years of seasonal data, e.g., data from 1994 through 1998 were replaced at the end of 1998. 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 for the last 5 years, but the seasonally adjusted indexes will be used before that period.

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 fuel oil and the motor fuels indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series. For some women's apparel indexes and the girls' apparel index, the procedure was used to offset the effects of changes in pricing methodology. For the tobacco and smoking products index, this procedure was used to offset the effects wholesale tobacco prices and legal fees passed on to consumers. For some alcoholic beverage series, Intervention Analysis Seasonal Adjustment was used to offset the effects of excise tax increases. For the Nonalcoholic beverages index, the procedure was used to offset the effects of a large increase in coffee prices due to adverse weather. The procedure was used to account for unusual butter fat supply reductions affecting the Fats and oils series. For the Water and sewerage maintenance index, the procedure was used to account for a data collection anomaly.

A description of Intervention Analysis Seasonal Adjustment, as well as a list of unusual events modeled and seasonal factors for these items may be obtained by writing the Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes, Washington, DC 20212 or by calling Claire McAnaw Gallagher on (202) 691-6968 or sending e-mail to Gallagher_C@BLS.GOV.