U.S. Inflation Rose 0.4% In October; Does That Lock In A Fed Rate Increase In December?

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Summary

  • While 0.4% looks high, core inflation remained in the moderate zone, just above 2.0% over the last 12 months.
  • Energy costs, along with shelter costs, accounted for most of the October increase.
  • There is nothing in today's report that should cause the Federal Reserve to delay an interest rate increase in December.

The Consumer Price Index for All Urban Consumers increased 0.4% in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, 'headline inflation' rose 1.6%.

The October increase - while high - matched the consensus number, so it wasn't a surprise. For the second month in a row, sharply higher energy prices drove inflation higher. Gasoline prices were up 7.0% in October and are now tracking close to year-ago numbers. Also, shelter prices were up 0.4% for the second month in a row.

Inflation was muted in other areas. Food prices, for example, were flat for the month and down 0.4% over the last 12 months. Apparel prices were up 0.3%, following a 0.7% decline in September.

Core inflation - which strips out food and energy - increased 0.1% in October and is up 2.1% over the last 12 months. Year-over-year core inflation has remained between 2.1% and 2.3% since December 2015, as shown in this chart:

12-month inflation

And so while the October headline number appears high, overall inflation remains moderate. This report shouldn't have much effect on the Federal Reserve's decision to raise short-term interest rates, which appears likely in December. Federal Reserve Chair Janet Yellen signaled that move today in remarks prepared for a congressional appearance. From the Reuters report:

"Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals," she said. "Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability."

So Yellen is practically guaranteeing an increase in short term rates at the Fed's December 13-14 meeting. And

This article was written by

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I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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