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May 2007, Vol. 130, No. 5

Consumer prices rose less in 2006 than in 2005

Todd Wilson

The Consumer Price Index for All Urban Consumers (CPI-U), U.S. City Average, for All Items, increased 2.5 percent in 2006, compared with 3.4 percent during 2005.¹ A smaller rise in the energy index was responsible for the lesser increase in consumer prices last year. Shelter inflation was significantly higher, food inflation slightly lower. Table 1 lists those components of the CPI which had a large effect on the index for all items during 2006.

The CPI-U excluding food and energy increased more in 2006 than in 2005: 2.6 percent compared with 2.2 percent. The increase in this index was the highest in 5 years, reflecting higher shelter inflation. (Shelter costs represent about 42 percent of the index for all items less food and energy and 33 percent of the index for all items.) Increases in residential rents were higher in 2006 than in the previous year, mirroring a reduction in the number of residential rental vacancies. As a result, the indexes for owners’ equivalent rent of primary residence and for rent of primary residence accelerated in 2006. Prices for commodities less food and energy have remained nearly unchanged over the past 3 years. Rising a total of 0.6 percent over the 3-year period, they were down 0.1 percent last year. In general, commodities are subject to greater global competition than are services, and in fact, the category of commodities less food and energy has registered smaller price increases than services less energy every year since 1984. Reflecting primarily the acceleration in shelter costs, services less energy prices rose 3.7 percent in 2006, higher than during 2005, when they increased 2.9 percent. (See table 2.)

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Footnotes
1 Annual percent changes are calculated from December to December.

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