MNI 5 THINGS: US December Core CPI To Rise 0.2%; No Clear Risk

     WASHINGTON (MNI) - The Consumer Price Index, which will be released on

Friday, is expected to show an overall energy-led decline of 0.2% and a 0.2%

rise for core CPI in December. In contrast, market participants are anticipating

overall CPI to hold steady with another flat reading in the month.

     Ahead of the release, we outline five themes for particular attention.

--NO CLEAR SURVEY RISK

     Survey history shows a tendency to accurately estimate overall CPI, with

analysts having been on target nine out of the last 20 years. Though they have

overestimated CPI eight times by an average of 0.14pp in the last 20 years, this

month's expected decline makes an overestimate less likely. Looking at just the

last 10 years, analysts' estimates have been on target more often. They

correctly estimated CPI six times and overestimated and underestimated it two

times each. Therefore, there is no clear risk to this month's estimate.

--CORE CPI USUALLY NOT A SURPRISE

     Analysts' estimates of core prices in the month of December have been even

more accurate than for headline values. In the last 20 years, they have been on

target 12 times, overestimated seven times, and underestimated just once. And in

just the last 10 years, they have correctly estimated core prices six times,

overestimated three times, and underestimated only once. Their four misses

average just 0.10pp, suggesting that a potential miss this month would be

relatively small. However, given their track record for correctly estimating

core CPI, there is no clear risk to their estimate for a 0.2% rise in December.

--MARKETS SEE FLAT OVERALL CPI

     While analysts are expecting to see a decline in prices in the month,

markets are anticipating another flat reading. In the last year, market

expectations for prices have been less accurate than analysts' forecasts, with

markets having correctly predicted headline CPI four times compared to six times

for analysts. Although both markets and analysts have shown a tendency to

overestimate this past year, having done so six and five times respectively,

their expectations for a soft headline value this month make an overestimate

unlikely. When markets miss, they do so by an absolute average of 0.12pp. This

compares to an absolute average miss of 0.06pp for analysts. Based on their

respective histories, and barring any surprises in this month's report, markets

may be disappointed by a softer-than-expected headline value.

--ENERGY PRICES THE BIG SPOILER

     Analysts have pointed to falling energy prices as an explanation for the

expected decrease in headline CPI, and recent data support this idea. Data from

the Automobile Association of America show that the average pump price of

gasoline declined by 27 cents from November 13 to December 11. Additionally,

according to data from the US Energy Information Administration, the price of

WTI crude oil slipped from $52.98 to $45.15 through December, indicating a broad

decline in all forms of energy that use petroleum, and supporting the analyst

estimate for a decline. The minutes of the Federal Reserve's December meeting

shows a few participants suggesting the impact of energy price declines on

overall inflation may temporary.

--HOUSING, MEDICAL, NEW VEHICLES POSITIVE

     Core CPI is expected to rise 0.2% due to continued strength in the owners'

equivalent rent, medical care services, and new vehicles categories. Medical

care prices should remain on an upward trend, while the owners equivalent rent

category has not experienced a month over month decline since May 2010.

Additionally, new vehicles prices are expected to rebound after two declines and

one flat reading in the previous three months. However, used vehicles prices are

likely to decline after very strong October and November gains, partially

offsetting the gains in the other core categories.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

--MNI Washington Bureau; +1 202-371-2121; email: shikha.dave@marketnews.com

--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com

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