September Price Statistics
The CPI rose at an annualized rate of 2.0 percent in September, following an energy-price-induced 5.5 percent jump in August, and is now up 2.5 percent over the past three months. The BLS release states that the overall increase was "broad based" among components and tempered by a 1.2 percent decrease in food prices (their sixth decrease in the past eight months).
Excluding food and energy prices (core CPI), the index rose 2.0 percent in September. This is somewhat surprising given that Owners' Equivalent Rent (OER) - which comprises roughly 25 percent of the overall index (and roughly 40 percent of the core CPI) - fell 1.7 percent during the month, its first monthly decrease since 1992 and its largest decline on record (back to 1982). This decrease was offset by relatively strong increases in lodging away from home (up 19.0 percent), medical care commodities (up 8.1 percent), and vehicle prices. New vehicle prices rebounded somewhat in September, rising 4.9 percent compared to a 14.7 percent decrease in August, as the CARS rebates rolled off. Interestingly, used car and truck prices jumped 20.7 percent in September, following a roughly 25 percent increase in August, perhaps adding some credence to the story that the CARS incentive tightened the inventories of used-car dealers and led to higher wholesale and auction prices.
|Percent change, last|
|1 mo.a||3 mo.a||6 mo.a||12 mo.||5 yr.a||2008 average|
|Consumer Price Index|
|Less food and energy||2.0||1.3||1.9||1.5||2.2||1.8|
|16% trimmed meanb||1.3||0.8||1.1||1.0||2.5||2.7|
|Producer Price Index|
|Less food and energy||-0.7||0.0||1.1||1.8||2.3||4.3|
b. Calculated by the Federal Reserve Bank of Cleveland.
Sources: U.S. Department of Labor and Bureau of Labor Statistics.
While price increases may have been "broad based" across the number of components, the underlying price-change distribution by expenditure weight reflected some softness. Roughly 44 percent of the overall index (by expenditure weight) exhibited outright price decreases, compared to 33 percent in August. On the other end of the distribution, just 15 percent of the consumer market basket increased in excess of 5.0 percent, leaving just 12 percent of the overall index rising at rates between the broad "sweet-spot" range of 1 percent and 3 percent. Reflecting some of the underlying softness in the price-change distribution, the median CPI rose just 0.5 percent in September, compared to its three-month growth rate of 0.8 percent and its longer-run (12-month percent change) growth rate of 1.5 percent. The 16 percent trimmed-mean measure increased 1.3 percent in September and is up just 1.0 percent over the past year.
The longer-term (12-month) trends in the measures of underlying inflation produced by the Federal Reserve Bank of Cleveland, the median and the trimmed mean, ticked down in September and are now ranging between 1.0 percent and 1.5 percent. Interestingly, the longer-run trends in the CPI and core CPI headed in the opposite direction in September. The 12-month growth rate in the CPI rose from -1.5 percent to -1.3 percent, and the longer-term trend in the core CPI increased a slight 0.1 percentage point to 1.5 percent during the month.
Reading the headline inflation forecasts from the most recent Blue Chip survey is much like the reading the story of Goldilocks and the Three Bears. The average of the bottom 10 forecasts has inflation running "much too cold" - below 1.0 percent by the end of 2010. At the other end, the average of the top 10 has it rising above 3.0 percent by the fourth quarter of 2010 - some might call that "too hot." However, the overall average hits 2.0 percent by the end of next year, which some might argue is "just right." The relatively wide dispersion is likely due to disagreement over the uncertain effects of a large output gap on inflation and the relative stability of inflation expectations.