By Paul Gomme and Peter Rupert
The BLS announced that the CPI jumped 8.07% on an annualized basis in September. The year over year increase was 3.72% and our trend measure shot up to 4.62%.
As mentioned in earlier inflation posts, the trimmed mean is another measure that people have been looking to; it that increased to 3.53% from 2.67% in August. The core CPI (ex food and energy) increased 4.09% and our trend measure increased 3.11%.
Although the Fed has a preference for the PCE inflation measure, it seems likely, given the correlation between the CPI and PCE, that we will be seeing an increase in those numbers as well. The timing of the PCE release is unfortunate for the FOMC: the PCE data will be released on October 29, one day after the conclusion of the FOMC’s October 27-28 meeting. Further complicating matters for the FOMC: mid-term elections less than a week later. Those wishing to hold the Fed funds rate unchanged can, in addition, suggest that the effects of the Fed’s earlier tightening have not yet been realized. On the other hand, the committee may look foolish if one day after their rate decision the September PCE inflation rate is reported to have risen.
Just as a bit of an aside, why does inflation measurement seem so confusing? In any month there are possibly large price swings across the broad categories measured by the BLS or BEA. This month, for example, see what happened to energy commodities (motor fuel and fuel oil), food and medical care commodities:
While fuel and motor oil skyrocketed, food prices have been pretty tame and medical care commodities (such as prescription drugs) have been declining. The difficulty, then, is how best to understand what is happening to average prices across all the commodities? This is where the controversy comes in. Throw out food and energy? Look at an underlying trend measure? Or, in any month remove the highest and lowest 8%, i.e., trim off about 16% of price changes. The jury is still out.
