Inflation Remains Mild With Energy Accounting For Half The Increase

by: Doug Short

The Bureau of Labor Statistics released the latest CPI data this morning. YoY unadjusted Headline CPI came in at 1.18%, which the BLS rounds to 1.2%, down from 1.52% last month (rounded to 1.5%). Year-over-year Core CPI (ex Food and Energy) came in at 1.73% (rounded to 1.7%), down from last month's 1.76% (rounded to 1.8%).

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in September on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.2% before seasonal adjustment.

The energy index rose 0.8% in September and accounted for about half of the seasonally adjusted all items increase. All the major energy component indexes rose in September. The food index was unchanged, with declines in the indexes for fruits and vegetables and for nonalcoholic beverages offsetting increases in other indexes.

The index for all items less food and energy rose 0.1% in September, the same increase as in August. The shelter and medical care indexes also advanced and accounted for most of this increase. The indexes for new vehicles and for airline fares rose as well, while the apparel and recreation indexes declined.

The all items index increased 1.2% over the last 12 months; this was the smallest 12-month increase since April. The index for all items less food and energy has risen 1.7% over the last year with the shelter and medical care indexes both up 2.4%. The food index has risen 1.4%, while the energy index has declined 3.1%. More...

The consensus forecast was for a 0.2% MoM for both headline and Core CPI. Their YoY forecast for Core CPI was spot on at 1.2%. They were looking for Headline at 1.6%.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

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On the chart below I've highlighted 2 to 2.5% range. Two percent has generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low Fed Funds Rate and quantitative easing) are in place.

(Click to enlarge)

Federal Reserve policy, which has historically focused on core inflation, and especially the core Personal Consumption Expenditures (PCE), will see that the latest core CPI is below the near-term target range of 2 to 2.5%, and the more volatile headline inflation, is well below the target range.