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Is it a surprise that the Labor Department's Consuer Price Index (CPI) – a benchmark heavily weighted in energy costs – declined for the third consecutive month in December? It's precisely because of the volatile nature of energy (and food) prices that the government started tracking "core" inflation in its monthly reports. Seasonally adjusted CPI decreased 0.7% in December, bringing the 2008 annual inflation rate down to 0.1%. The CPI rose 4.1% in 2007. Core inflation – that is, CPI stripped of food and energy costs – was flat in December. For the entire year, core inflation rose 1.8%, a significant slowdown from the 2.4% rate clocked in 2007. Falling gasoline prices contributed most of the decline in December's overall inflation rate, though lower food prices were also a factor. Food costs decreased 0.1% in the final month of 2008. Measured by the CPI, consumer food prices steadily declined in the latter part of 2008, evidence of trickle-through from the downtrending Producer Price Index (PPI) we tracked in yesterday's column ("It's 2001 Again, Inflationwise"). Our monthly Breakfast Index points to milk prices as the primary engine of price deflation in the three-month period ending in December. Considering most folk put milk in their cocoa, that's a convenient offset to the rising cost of the chocolate stuff (see "Cocoa Analysis Completes Our Tropical Trifecta"). Cocoa is the single breakfast item bucking the falling price trend. December Breakfast Index Commodity | Contract Month | 01-Oct-08 Price | 31-Dec-08 Price | 3-Month Change | Annualized Change | Cocoa | March ‘09 | $2,603/tonne | $2,665/tonne | 2.4% | 9.8% | Pork Bellies (Bacon) | February ‘09 | 93.000 ¢/lb | 87.375 ¢/lb | -6.0% | -21.9% | Butter, AA | March ‘09 | 151.50 ¢/lb | 135.00 ¢/lb | -10.9% | -36.7% | Wheat | March ‘09 | $7.0250/bu | $6.1075/bu | -13.1% | -42.6% | Sugar #11 | March ‘09 | 13.66 ¢/lb | 11.81 ¢/lb | -13.5% | -43.9% | Coffee | March ‘09 | 135.25 ¢/lb | 112.05 ¢/lb | -17.2% | -52.6% | Orange Juice | January ‘09 | 93.10 ¢/lb | 68.55 ¢/lb | -26.4% | -70.3% | Milk, Class III | January ‘09 | $15.54/cwt | $10.80/cwt | -30.5% | -76.4% | Average | | | | -14.4% | -41.8% | | | | | | | bu = bushel; tonne = metric ton (2,200 lbs); cwt = hundredweight (100 lbs) |
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