Low inflation is arguably the biggest justification for the Federal Reserve’s continued use of extraordinary monetary stimulus.
According to the latest data from the U.S. Bureau of Labour Statistics, the consumer price index was 1.2% higher from a year earlier in November. December data are released Thursday morning, and economists expect the headline annual inflation rate to jump to 1.5%.
The chart below shows percentage-point contributions to the annual inflation rate of each of 175 components in the basket of goods that make up the consumer price index.
It shows that the single dominant contributor to inflation over the past year has been owners’ equivalent rent. Holding all else equal, if the price of OER had not changed over the past year, the headline inflation rate would be a little under 0.6 percentage points lower.
Likewise, the single largest drag on inflation over the past year has been gasoline prices. Holding all else equal, if gas prices had not changed over the past year, the headline inflation rate would be about 0.3 percentage points higher.
106 of the components were provided a positive contribution to inflation, while 67 of the components were negative contributors. Two components (wine at home and sports vehicles including bicycles) had no effect.
The mean contribution was 0.007 percentage points, while the median contribution was 0.001 percentage points. The standard deviation of individual contributions was 0.534 percentage points.