Econoday Report: Consumer Price Index 16, 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 11/16/05 For Oct 2005

CPI, M/M change
Actual	0.2%
Consensus	0.1%
Consensus Range	0.0% to 0.1%

CPI less food & energy, M/M change
Actual	0.2%
Consensus	0.2%
Consensus Range	0.2% to 0.3%

Highlights
Consumer inflation isn't on fire as it was in September, but there's still signs of pressure. October's CPI, which was expected to come in unchanged, rose 0.2% with the core rate also up 0.2%. The core rate excludes energy and food and is closely watched by policy makers. The year-on-year core rate is at 2.1%, on the wrong side of the 2% line. The year-on-year rate for the overall index, which does reflect the sharp rise in energy prices, is up a very hot 4.3%.

Price increases weren't heavy in October but there were some: housing up 0.9%, medical up 0.5%, food up 0.3%, education up 0.3%. Vehicle prices, which slipped back in yesterday's PPI, were mixed with new vehicles up and used vehicles down. Apparel prices were down while transportation prices, which had been increasing steadily along with energy prices, fell back sharply in the month.

Energy prices, which exploded during September's hurricanes, fell back 0.2% in the month. Gasoline prices fell 4.5% while fuel oil was down 0.4%. But natural gas did rise sharply, up 14.0% offering a reminder of how volatile energy prices can be.

Financial markets showed unusually little reaction to the data, though bonds did firm slightly. As long as energy prices continue to recede, so will the risk of greater gains in the CPI. Still, the year-on-year rates are on the inflationary side and are certain to catch the attention of Ben Bernanke, who yesterday told Senators that inflation was indeed running a little hot.

Market Consensus Before Announcement
The consumer price index jumped 1.2 percent in September after posting hefty gains in the two previous months - due primarily to energy price spurts. Excluding food and energy, the CPI rose 0.1 percent for the month. Energy prices will likely dip in October.

CPI Consensus Forecast for Oct 05: 0.1 percent
Range: 0.0 to 0.1 percent

CPI ex food & energy Consensus Forecast for Oct 05: 0.2 percent
Range: 0.2 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