CPI Down, Housing Starts Up, But Inflation Remains a Concern

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Inflation Fears and Housing [Business Week]

Summary: CPI fell 0.5% in September (vs. 0.3% forecast), while core CPI (which excludes food and energy prices) rose 0.2%, in line with forecasts. Falling energy prices led the decline in overall CPI, dropping 7.2%, while gasoline prices fell 13.5%. Sectors: food +0.4%, shelter +0.3%, apparel +0.6%. On the year core CPI is up 2.9%. September housing starts rebounded, +5.9% (1.7M units annually), beating forecasts handily, and joining a host of other housing indicators that show a bounce in the sector. Regionally, South and Midwest starts were up strongly, West was down slightly, and Northeast starts fell 14%. Permits, though, were down 6.3%, falling for the eighth straight month; they are at their lowest level since 2001. Related: The federal government announced that Social Security payments, which are based on changes in the CPI, will increase 3.3 percent in 2007, putting an average $33 more per month in consumers' pockets. Overall: The sharper-than-expected drop in CPI and upside surprise for housing starts seem to be upbeat economic news. But Y/Y inflation trends remain a concern (1.5-2.5% core is considered ideal), and will command attention at the next FOMC meeting Oct. 24-25.
Related links: Bloggers' Take on Inflation • Options Trader: Thursday Morning Ideas • Has Inflation Been Completely Tamed? • Seeking Alpha coverage of the real estate market and homebuilder stocks • Mr. and Ms. Median American Over The Decades
Potentially impacted stocks and ETFs: streetTRACKS SPDR Homebuilders ETF (XHB)

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