CPI: Still Disinflationary

by: Cullen Roche

The CPI report came in much weaker than expected this morning and the conspiracy theorists and hyperinflationists are up in arms over it. Econoday reports the breakdown:

Headline inflation worsened but only marginally and less than forecast. The overall CPI in October posted a 0.2 percent boost, following a 0.1 percent rise in September. The market consensus had expected a 0.4 percent boost for the latest month. Excluding food and energy, CPI inflation was unchanged for the third month in a row. Analysts had projected a 0.1 percent rise for October.

By major components, energy increased a strong 2.6 percent, following a 0.7 percent boost in September. Most of the latest gain was from a 4.6 percent surge in gasoline prices. According to the Bureau of Labor Statistics, 90 percent of the CPI increase came from the increase in gasoline. Food slowed to a 0.1 percent rise after gaining 0.3 percent the month before.

Weakness in the core was led by declines in indexes for new vehicles, used cars and trucks, apparel, recreation, and tobacco. Also, shelter rose only 0.1 percent.

Year-on-year, overall CPI inflation firmed to 1.2 (seasonally adjusted) from 1.1 percent September. The core rate in September slipped to 0.6 percent from 0.8 percent the prior month. On an unadjusted year-ago basis, the headline number was up 1.2 percent in October while the core was up 0.6 percent.

Despite the enormous move in commodity prices in recent months we’re just not seeing costs passed along to the consumer. This report isn’t unique. The independent MIT based Billion Prices Index shows a very similar trend of disinflation with 1.8% year over year inflation.

My personal inflation gauge, which includes mortgage costs, is also showing a disinflationary trend although it is somewhat higher than the other indices at 2.28% year over year. That is likely to be revised substantially lower as falling home prices and mortgage cost data is released in the coming weeks and months.

With housing now double dipping, it’s very likely that inflation pressures will continue to be on the downside.