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May 2006, Vol. 129, No. 5

Consumer prices rose 3.4 percent in 2005, about the same as last year

Todd Wilson

The Consumer Price Index for All Urban Consumers (CPI-U) for All Items for the U.S. city average increased 3.4 percent in 2005, compared with a 3.3-percent rise during 2004.¹ A larger increase in the index for household fuels in 2005 was mostly offset by smaller increases in the indexes for motor fuel, motor vehicle insurance, and new and used motor vehicles. (See table 1.)

The CPI-U excluding food and energy prices increased 2.2 percent in 2005, the same rate as during the prior year.² Excluding food and energy commodities, inflation for commodities decelerated in 2005. The index for commodities less food and energy index rose 0.2 percent in 2005, after rising 0.6 percent during 2004. Commodities are generally subject to greater global competition than services, and have registered smaller price increases than services in every year since 1983. Services less energy prices rose 2.9 percent in 2005, by about the same increase (2.8 percent) during 2004. (See table 2.)

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Footnotes
1 Annual percent changes are calculated from December to December, unless otherwise stated.

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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