By Paul Gomme and Peter Rupert
The Bureau of Labor Statistics announced that the CPI rose 0.2% on a seasonally adjusted basis in October. Our own calculation using the level of the price index, shows an increase of 0.24% over the month or 2.97% on an annualized basis, up from an annualized 2.18% in September. The year over year increase was 2.58% in October, increasing from the 2.41% reading in September. Our preferred annualized trend measure also increased, from 1.98% in September to 2.31% in October.
Removing food and energy from the index shows a slight drop in the annualized number, from 3.81% in September to 3.42% in October. The year over year saw almost no change, 3.26% to 3.30%. Our trend measure rose from 3.06% to 3.18%. More importantly, our trend measure has been increasing every month since June.
The main reason that “core” inflation is used by the Fed and others is due to the fact that food and energy prices are very volatile and so are removed from the index. However, food and energy are large parts of the expenditure of households. So when households are looking at the prices of things they buy, obviously, food and energy play a large role. Food is roughly 13% of the total expenditures in an average urban budget and energy is a bit over 6%. The largest expenditure category is shelter at about 37%. While one can pick and choose what to take out, many of the measures have also shown increases, but others have not. For example, take food prices. The price index shot up quickly during/after Covid but the growth of prices has come down but have started to rise more recently.
The CPI for services also increased during and after Covid and have since come down but again have started to creep up.
The bottom line is that inflation has come down over the past year or so, but many indicators are showing signs of increasing prices. So, it seems surprising that some Fed officials, namely Kashkari stated that inflation is moving in the right direction and Logan said that “progress on inflation has been broad based,” although Logan was speaking about the PCE, see our commentary about the PCE here.
