Highlights:
- Headline CPI rose an expected 0.4% sending the annual rate up to 2.2% from 2.0% in October.
- A 7.3% monthly jump in gasoline prices provided a lion’s share of the increase.
- Excluding food & energy prices, ‘core’ CPI rose 0.1% in the month and 1.7% over the year.
Our Take:
The year-over-year increase in core inflation dropped back down to 1.7% in October. After holding steady at 1.7% four five consecutive months, the rate moved up to 1.8% in October. The increase continues to be constrained by a large drop in telecommunications prices earlier this year and in apparel prices in November. The absence of inflation pressures has been a puzzle with respect to the U.S. economy. Indications, such as a low unemployment rate, are indicative of the economy operating close to capacity. Operating at capacity is usually associated with inflation pressures starting to build with businesses having increased difficulty responding to rising demand because of resource constraints and thus temper demand by raising prices. Today’s report provides some confirmation of retailers responding in this expected manner with services prices up 2.6% over the past year. However, it is being offset by lower goods prices. Our expectation is that the growing capacity constraints will increasingly see the price performance of the former dominate with core inflation resuming an upward trend.
