Implications: Although prices have been escalating at the producer level, consumer price inflation remains quiescent. However, given recent increases in commodity prices as well as easy monetary policy, we don't think such low consumer inflation will persist into 2011. Although consumer prices are up only 1.1% from a year ago, they are up at a 1.8% annual rate in the past six months. Meanwhile, oil prices in December appear ready to average their highest level for any month since the collapse of Lehman Brothers in September 2008. In addition, one of the factors that has held inflation down in the past year is now heading back up. Owners' equivalent rent (OER), which is the government's estimate of what homeowners would pay if they rented their own homes, mostly fell in late 2009 and early 2010 but is now up 0.2% versus a year ago, up at a 1% annual rate in the past three months and up at a 1.4% annual rate in November. This is important because OER accounts for about 25% of all the goods and services counted for the CPI.
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