ICS Magazine

Consumer Price Growth Eased Last Month; Housing Starts Up

December 17, 2002
WASHINGTON (Dec. 17) -- Consumer prices grew at a slower pace in November as energy, transportation and housing prices moderated, providing further evidence that inflation remains under control.

Meanwhile, home building activity increased in the month, suggesting the housing sector still remains the strongest part of the U.S. economy.

The consumer price index rose 0.1% last month, the smallest rise in four months, and down from the 0.3% increase in October, the Labor Department said Tuesday. The core index, which excludes the volatile food and energy components, rose 0.2% in after a 0.2% increase in October.

The numbers were mostly in line with expectations. Wall Street had expected the overall and core CPI to both rise by 0.2%.

The Labor Department attributed the small rise in consumer prices in November mainly to slower growth in prices of energy, transportation, apparel and housing.

Housing prices, which account for 40% of the index, rose 0.2% after a 0.3% rise in October. Medical-care prices rose 0.6% in November. Within that category, prescription drug prices rose 0.4% and hospital and related services prices rose 1.2%, their biggest increase since August 1990.

Energy prices, which account for 6% of the index, fell 0.2%, their first drop in six months. Gasoline prices fell 0.4%, their biggest drop in six months. Food prices, which account for 15% of the index, rose 0.3% in November after rising 0.1% in October.

Transportation prices, which account for 18% of the index, fell 0.1% in November after a 0.6% gain in October. Prices of new motor vehicles fell 0.1% compared to the 0.4% gain in October. Airline fares fell 0.8% in November and cigarette prices were unchanged for the month.

Apparel prices fell 0.4%, the biggest drop in four months, the Labor Department said.

In a separate report, the Labor Department said average weekly earnings of U.S. workers, adjusted for inflation, rose 0.2% as a 0.3% rise in average hourly earnings was partly offset by a 0.1% rise in the CPI for urban wage earners and clerical workers.

Housing starts rose 2.4% last month to a seasonally adjusted 1.697 million annual rate, the Commerce Department said Tuesday, following a revised 8.4% decline in October starts to a 1.657 million annual rate. October housing starts were previously reported as a 11.4% drop to a 1.603 million annual rate.

The November figure was near analysts' expectations if the October revisions are taken into account. A Dow Jones Newswires-CNBC poll of economists predicted housing starts would rise by 4.8% to a 1.68 million annual rate.

The housing sector has remained strong for the past several years and defied analysts' expectations as it weathered last year's economic recession, helped by historically low mortgage interest rates that have remained near 6%.

However, the November report showed that building permits, an indicator of future building activity, fell by 2.7% to a 1.725 million annual rate last month after a 2.3% gain in October. A fall in building permits could suggest the housing market is poised to weaken. Most economists are predicting the housing market will slow in 2003 from what is likely to be a record-setting year in 2002. But on Monday the National Association of Home Builders reported that its housing market index rose to a two-year high in December, which suggests housing could still make gains.