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September Price Statistics

The Consumer Price Index (CPI) rose at a 3.4 percent annualized rate in September, after falling 1.7 percent in August, pushing the 12-month growth rate from 2.0 percent to 2.8 percent. Although oil prices exerted a considerable influence on the monthly CPI report, general upward pressure was evident across the consumer's market basket. The rise in the core CPI, the median CPI, and the 16 percent trimmed-mean CPI, at 2.7 percent, 3 percent, and 2.9 percent, respectively, were all above their 3-, 6-, and 12-month averages.

September Price Statistics

Percent change, last
1mo.a 3mo.a 6mo.a 12mo. 5yr.a 2006 avg.
Consumer Price Index
All items 3.2 1.0 3.1 2.8 2.9 2.6
Less food and energy 2.7 2.5 2.4 2.1 2.0 2.6
Medianb 3.0 2.5 2.5 2.8 2.5 3.1
16% trimmed meanb 2.9 2.0 2.2 2.3 2.3 2.7
Producer Price Index
Finished goods 14.7 1.5 3.7 4.4 3.7 1.6
Less food and energy 0.7 1.5 2.0 2.0 1.6 2.1
a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
Sources: U.S. Department of Labor, Bureau of Labor Statistics; and Federal Reserve Bank of Cleveland.

A look at the distribution of the price changes in CPI components bears this observation out. Over the past three months, the percentage of CPI components showing outright price declines has fallen steadily, from about 32 percent to 16 percent of the consumer's market basket, while the share showing price increases of 3 percent or more has grown from about 42 percent to 57 percent.

CPI Component Price-Change Distributions

In its October 31 statement, the Federal Open Market Committee reiterated its concern that "some inflation risks remain" and noted that "recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation." "In this context," said the FOMC, "some inflation risks remain, and [the committee] will continue to monitor inflation developments carefully."

Readings from the Producer Price Index (PPI), which is subject to somewhat larger monthly fluctuations than the CPI, spiked 14.7 percent at an annualized rate in September, taking back most of August's 15.3 percent decrease. However, the PPI excluding food and energy only increased 0.7 percent, after rising 2.3 percent last month. Nevertheless, we've seen a variety of significant price hikes for crude materials other than energy over much of the year, and that pattern seems to have continued into the third quarter. Crude foodstuffs were up a little more than 12 percent over the June-to-September period, as were nonfood and nonenergy materials costs.

Core Crude PPI

Among the potential contributors to a worsening inflation outlook is the continued decline in the dollar vis-a-vis foreign currencies. As the value of the dollar declines, some upward pressure on import prices seems inevitable. How much, and how persistent these price pressures might be, is unknown, and depends, among other things, on how retailer and foreign margins adjust to the falloff in U.S. demand for foreign goods. To date, however, the so called "pass through" of the declining dollar to import prices has been difficult to see in the data with non-oil import costs trending rather steadily at about 2 percent annually.

Non-Oil Import Price Index

If inflation risks have heightened recently, the change hasn't been reflected in the survey data on inflationary expectations. Household inflation expectations, both short and longer run, have been falling since May, according to the University of Michigan's Survey of Consumers. Expected average short-run inflation (for the year ahead) fell from 4 percent to 3.5 percent in October. Longer-term expectations (5 to 10 years out), which had been holding just above the 10-year average of 3.4 percent since April, dropped to 3 percent during the month.

Household Inflation Expectations

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