Econoday Report: Consumer Price Index 14, 2005

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Consumer Price Index

Definition
The Consumer Price Index is a measure of 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. Why Investors Care

Released on 10/14/05 For Sep 2005

CPI, M/M change
Actual	1.2%
Consensus	0.9%
Consensus Range	0.2% to 1.2%

CPI less food & energy, M/M change
Actual	0.1%
Consensus	0.3%
Consensus Range	0.1% to 0.3%

Highlights
Gasoline prices made for an unusually expensive September, at least at the consumer level where prices jumped 1.2% compared to August and 4.7% year-on-year. Energy prices, boosted by a 17.9% rise in gas, rose 12.0%.

The Labor Department said Katrina and Rita had only a small effect on September's data, which was also noted yesterday in the import/export price report.

Despite the scary looking gains, the core rate that excludes food and most notably here, excludes energy, rose only 0.1% with the year-on-year rate right at the 2.0% level where Federal Reserve officials typically draw the line. Still the rate, continuing to be insulated from sky high fuel prices, is under last year's core level.

But a look down the categories does show price pressures: education & communication up 0.7%, transportation up 5.1%, housing up 0.4%, recreation up 0.4%, and food up 0.3%.

Importantly, the outlook for next month's CPI isn't as harrowing as the Labor Department said gas prices so far in October have been flat.

Today's report shouldn't shake up the financial markets, though it does point to building price pressures and is certain to raise vigilance at the Fed. In a final note, today's CPI sets the government's 2006 COLA (cost of living adjustment) at 4.1%, the highest in 14 years.

Market Consensus Before Announcement
The consumer price index rose 0.5 percent in August for the second straight month - due primarily to a spurt in energy prices. Excluding food and energy, the CPI rose 0.1 percent for the month. Energy prices will be up sharply in September as well.

CPI Consensus Forecast for Sept 05: 0.9 percent
Range: 0.2 to 1.2 percent

CPI ex food & energy Consensus Forecast for Sept 05: 0.3 percent
Range: 0.1 to 0.3 percent

Trends

It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations.

Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI.

Data Source: Haver Analytics

2005 Release Schedule

Released On: 1/19 2/23 3/23 4/20 5/18 6/15 7/14 8/16 9/15 10/14 11/16 12/15

Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov