Consumer price inflation eased notably in October, with the Labor Department reporting that the Consumer Price Index (CPI) rose by just 0.1% for the month. That figure follows, by one day, a report on producer prices, which had shown a modest dip in October. Expectations on the CPI had been for an increase of 0.1%.
The tame CPI reading comes after two sharp monthly increases for that inflation gauge, as prices had soared by 0.6% in August and September, respectively, largely on sharp increases in energy prices.
Now, energy has stepped back notably, falling by 0.2% in the latest month. In August, energy costs had been up a resounding 5.6%. They were higher by 4.5% in September. If we back out the volatile food and energy components from the mix, to get the so-called core rate of CPI change, we find that this index also was up by a token 0.1% in the latest month. Clearly, the Federal Reserve, which has been aggressively trying to breathe added life into the economy, retains its flexibility in this low-inflationary environment.
Helping energy costs reverse course was a modest dip in gasoline prices last month. Specifically, after surging by 16.6% from July through September, such costs dipped 0.6% in October. Oil prices have continued to descend during November thus far.
Meanwhile, for the past year, consumer prices were up 2.2%; excluding food and energy, the increase was 2.0%. The Fed targets a rate of 2.0% inflation. With inflation in that range, the lead bank, as noted, should feel no discernible pressure to curb its stimulative bond-buying maneuvers. Of course, critics of the Fed, and there are many, have warned that such aggressive bond buying will have an inflation price tag to it. But that is down the road by several years, we sense. In the short run, the bank is probably on the mark in stimulating aggressively.
One especially bright note in the latest month was the fact that medical care costs were flat--the first time in two years that this index of health care inflation did not rise. Given the increasing share of the overall inflation mix coming from medical care, this flat reading is certainly encouraging. Overall, then, this was a reassuring report and should help to offset, at least in part, a big jump in weekly jobless claims reported in the latest seven-day stretch. However, that jump to well over 400,000, was occasioned by the dislocation emanating from Hurricane Sandy and is not indicative of any structural deterioration in the labor market.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.