What have we learned from the Consumer Price Index (CPI) Report of September 13 – 10 p.m. How Consumer Prices Have Been Growing in the Past 12 Months
The Consumer Price Index report for September showed that Americans were having trouble with rapidly rising prices. Here are the things that have been learned.
Prices increased 6.6 percent after stripping out fuel and food — which tend to be volatile and are often removed from inflation readings to allow for a better sense of underlying trends — an uptick in the so-called core index that was also more than economists expected.
The Fed officials and analysts will more closely watch the monthly figures from August to September. While the annual numbers reflect what has happened cumulatively over the past 12 months, the monthly data give a clearer snapshot of how prices are evolving in real time.
Inflation remains relentless. In September, the overall index climbed despite a slight moderation from the prior month, but that is due to the fact that gasoline prices have dropped, and are unlikely to go back up again. Practically every other detail of the report was worrying.
Since price increases for services have been rising faster than goods, moderation alone will not return America to a normal inflation rate. The category which covers everything from meals out to monthly rent accounted for half of the consumer price inflation in October, up from less than a third a year earlier.
The Fed goals for 2 percent annual inflation are based on a different measure of inflation: the Personal Consumption Expenditures measure, which will not be released until late October.
Because fast inflation has lingered for more than a year and a half, central bankers are likely to stay focused on trying to bring inflation down.
The interest rates went from zero to 4% in less than a month. Powell warned rates are likely to climb higher and stay up longer, adding that history cautions against easing up on the fight against inflation too soon.
Rents are still going up. In the year so far, the cost of renting a primary residence has increased by more than 6 percent. That measure typically climbs around 3 percent per year, and housing costs matter because they move slowly and make up a big chunk of overall inflation.
Other services are getting more expensive. Pet care, dental visits and a lot of other services have their prices increased. That’s worrying, because it suggests that wage increases — a major cost for service providers — may be feeding into higher prices.
Gasoline Price Decays in the U.S. Over the Last Three Months, and the Implications for Oil Prices
The price of gasoline went down 2% between October and November, while gas is selling for less than it did a year ago.
“Gasoline deflation is alive and well,” Patrick De Haan, head of petroleum analysis at GasBuddy, tweeted on Wednesday, noting the quick comedown in gas prices in California, where prices have been particularly steep.
Falling energy prices could continue to help ease consumer inflation. The US consumer price index fell in October to register its lowest reading in a year. Data for November arrives next week.
Energy analysts had been worried that Europe’s embargo on oil shipped by sea from Russia and the West’s new price cap on Russian crude could inject volatility back into the market. But so far, oil prices have continued their descent.
Both Brent crude futures, the global benchmark, and West Texas Intermediate futures, the go-to for US prices, have dropped almost 10% so far this week, hitting their lowest levels of the year.
Plus, demand from China could rebound faster than expected as the country lifts coronavirus restrictions. Concerns about the economic impact of those restrictions have been a key reason oil prices have dropped in recent months.
The Slow Rise and Fall of Inflation: The Long Road to a More Secure, Faster, More Efficient Economy & Consumer Choices
It’s too soon to declare victory over inflation, but from gas to chicken to big-screen TVs, there are, increasingly, signs that inflation’s grip on American pocketbooks may be loosening.
Shoppers scored major deals over the Thanksgiving shopping period amid widespread price-cutting. Inflation fell in November, it was the largest one-year decline in 31 months.
Retailers are expected to keep their inventory high into the end of the year as consumers shift away from buying items like furniture and clothes to travel and experiences where prices are not coming down.
There are signs that the housing inflation has begun to ease. Rents are rising at a slower pace that they were in the spring.
At this time last year, economists were hopeful that snarls in global shipping and manufacturing would soon clear; consumer spending would shift away from goods and back to services; and the combination would allow supply and demand to come back into balance, slowing price increases on everything from cars to couches. Slowly, that has happened. It has also taken longer to translate into lower consumer prices than some economists had expected.
That means that today’s low unemployment and rapid wage growth could help to keep prices from going up more rapidly than they normally would.
That is where Fed policy could come in. Companies can only charge more if their customers are able — and willing — to pay more. The Fed can affect the chain reaction by raising interest rates.
The overall inflation rate declined slightly last month as the prices of gasoline and grocery items moved in opposite directions. Consumer prices in November were up 7.1% from a year ago, compared to an annual increase of 7.7% the month before.
Inflationary Environment and Consumer Price Index from the First Quarter of the Federal Reserve’s Fifth Rate in Nine Months: The Salinas Valley
The inflation figures were released Tuesday by the Labor Department, just as the Federal Reserve prepares to raise interest rates for the seventh time in nine months on Wednesday.
A box of romaine lettuce usually sells for between $25 and $30 on the east coast but is now costing up to $100 due to growing problems in California and high transportation costs.
An insect-borne virus curbed lettuce production in the Salinas Valley this fall. Diesel fuel costs almost $5 a gallon, even though gas prices have fallen.
Two weeks ago, the chairman of the Fed said it was too early to declare that goods inflation was over. If current trends continue, goods prices should be able to start to effect downward pressure on inflation in the coming months.
“People are now living with roommates as a result of high rent, doubling up again, so we’re seeing an increase in the number of people living with another person”, said CoreLogic economist Selma Hepp.
The consumer price index is not yet showing the effects of the housing market downturn because rents are only reflected in the official inflation data.
The Fed chairman is less confident about the price of services, which includes everything from restaurant meals to haircuts and which is largely driven by the cost of labor.