Don't expect criticism of Federal Reserve rate hikes to ease any after today's very subdued consumer price report. The September CPI inched only 0.1 percent higher with the ex-energy ex-food core rate also at 0.1 percent. Year-on-year rates inched 1 tenth lower for both, now at 2.3 percent overall and 2.2 percent for the core. All of these readings are below Econoday's consensus.
A 0.5 percent monthly decline in energy, reflecting drops for gasoline and electricity, held down the overall rate as did food which was unchanged in the month (throwing in beverages, the result is plus 0.1 percent). Year-on-year, energy is up 4.8 percent which, though far from severe, is the highest of any major component. The yearly rate for food is up only 1.4 percent and is reminder of how low prices are right now in the farm sector.
Transportation held down September's core, falling 0.3 percent as used vehicles dropped a sharp 3.0 percent in the month with new vehicle prices down 0.1 percent. Housing is the CPI's largest component and is very soft, at only a 0.1 percent gain. The closely watched owners' equivalent rent subcomponent managed a 0.2 percent gain, again subdued.
Apparel was the strongest component in September, jumping 0.9 percent after, however, three straight months of declines. This year-on-year rate is the only major component in the outright negative column, at minus 0.6 percent.
Wages may be tilting higher this year but they have yet, to say the least, to spillover into overall prices which remain remarkably flat given the strength of the economy and especially the labor market. Unless inflation does begin to show life, either perhaps in tomorrow's import and export price report or coming CPI reports, expectations for a Fed rate hike at the December FOMC could begin to fade.
Only modest pressure is what forecasters see for September's consumer price index, at a consensus increase of 0.2 percent which would match the rise in August which was held down by a contraction in medical costs and apparel. The consensus for the ex-food ex-energy core rate is also 0.2 percent vs August's marginal 0.1 percent increase. Year-on-year rates for September are seen at 2.4 percent overall, vs 2.7 percent in August, and 2.3 percent for the core vs August's 2.2 percent.
The Consumer Price Index is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group, representing about 87 percent of the population. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
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