The recently released CPI (Consumer Price Index) numbers for September are a bit of a mixed bag for the inflation outlook. Our preferred 3-month annualized change in CPI rose from 4.0% in August to 4.9% in September. However, the monthly inflation rate fell from 7.8% to 4.9% at an annual rate. On a year-over-year basis, CPI inflation was essentially unchanged at 3.7%.
Those who prefer core CPI also confront a mix. On a 3-month basis, core CPI inflation rose form 2.4% to 3.1% (annualized) and the monthly inflation rate was up from 2.4% to 3.1%. On the other hand, the 12-month inflation rate was down from 4.4% to 4.1%.
Producer Price Index (PPI)
October 11 saw the release of PPI data for September. While the monthly rate of PPI inflation fell, from 9.4% to 6.3% at an annual rate, the 3-month rate rose from 5.6% to 7.7% while the 12-month change was up modestly, from 1.9% to 2.2%.
For what it’s worth, the monthly change in the personal consumption component of PPI fell from 39.2% to 16.9% (annualized) while its 3-month inflation rate rose from 15.2% to 19.3% (also annualized). On an annual basis, this measure of inflation rose from 1.4% to 2.1%.
Policy Implications
To be sure, there is good news from the CPI report: On a monthly basis, overall CPI inflation is down while the annual inflation rate is unchanged. Core CPI inflation is down at on an annual basis, but not at shorter horizons. However, both CPI and core CPI inflation are running hotter than the Fed’s 2% inflation target (granted, for (core) PCE inflation). PPI inflation tells much the same story as CPI inflation: down on a monthly basis, but up when measured over longer horizons. However, it’s not clear that PPI inflation signals future CPI inflation — particularly for the PPI for personal consumption. It seems unlikely that the PPI and CPI releases for September will change policyholders’ predilections.
