Annualized Headline Inflation Rises Slightly, Core Unchanged

The Bureau of Labor Statistics released the CPI data for September this morning. Year-over-year unadjusted Headline CPI came in at 2.16%, which the BLS rounds to 2.2%, up from 1.99% last month (2.0% in the BLS record). Year-over year-Core CPI (ex Food and Energy) came in at 2.00%, essentially unchanged from last month's 1.98% (rounded to 2.0%).

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.2 percent before seasonal adjustment.

The shelter index increased 0.3 percent, its largest increase since March 2008, and accounted for over half of the seasonally adjusted all items increase. The index for all items less food and energy rose 0.2 percent, as the rise in the shelter index and increases in the indexes for apparel and airline fare more than offset declines in the indexes for used cars and trucks, new vehicles, and recreation.

The food index increased 0.2 percent in October with the index for food at home rising 0.3 percent, its largest increase since September 2011. The energy index, which had risen sharply in August and September, declined slightly in October. Major energy component indexes were mixed, with declines in the indexes for gasoline and natural gas more than offsetting increases in the indexes for electricity and fuel oil.

The 12-month change in the index for all items was 2.2 percent in October, an increase from the September figure of 2.0 percent. The 12- month change in the index for all items less food and energy remained at 2.0 percent. The food index rose 1.7 percent over the last 12 months, and the energy index increased 4.0 percent. More...

The Briefing.com month-over-month consensus forecast was 0.1% for Headline (right on target) and 0.1% Core (versus 0.2% actual).

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.


On the next chart I've highlighted the 2% level, which is generally understood to be the Fed's target for core inflation. Here we see more easily see the widening spread between headline and core CPI since late 2010, a pattern that began changing in October 2011 as headline inflation declined while core continued to rise, although it reversed directions earlier this year. We also see the jump in headline inflation since August owing mostly to the inevitable ripple effect of the rise in gasoline prices. With the decline in gasoline prices over the past several weeks (especially if it is sustained), we may see the headline number ease in the months ahead.

Federal Reserve policy, which focuses on core inflation, and especially the core Personal Consumption Expenditures (PCE), will see that the latest core CPI is fractionally above the target range, even though the more volatile headline inflation has fallen below two percent.