CPI

Highlights
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.

Consensus Outlook
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.

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