- Consumer prices rose 0.2% month/month in September, in line with market expectations. Total CPI was up 1.4% year-on-year in September, continuing its acceleration from only 0.1% in May.
- Similarly, core inflation also rose 0.2% month/month in September. This is more in line with historical standards after two months of post-shutdown rebounds in prices. Core inflation on a year/year basis was 1.7%, unchanged from August.
- The inflation divergence between goods and services continued in September. Core goods prices rose 0.8% m/m, while core services prices were flat. Goods prices were driven higher by the largest jump in used vehicle prices since 1969 (+6.7% m/m). In fact, the Bureau of Labor Statistics cited that the sharp increase in used cars and trucks prices accounted for more than 100 percent of the monthly increase in the index for all items less food and energy.
- Inflation elsewhere in core prices was very muted. Prices fell for motor vehicle insurance (-3.5% m/m), airline fares (-2.0% m/m), apparel (-0.5% m/m) and education (-0.3% m/m). The heavily weighted shelter category was up a modest 0.1% month-over-month. Shelter inflation was only 2.0% year/year, the lowest pace since February 2012.
- Energy prices continued their recovery, up 0.8% on the month in September. Energy prices remain 7.7% lower than a year ago, due to lower prices at the pump. Energy services are up 1.4% year/year, thanks to higher electricity and utility (gas) costs.
- Food prices were unchanged on the whole in September. Prices at grocery stores continued to fall (-0.4% m/m), although consumers are still paying 4.1% more for a basket of groceries than they were last September.
- In-person data collection continued to be suspended by the Bureau of Labor Statistics in September. Response rates remain lower than they were a year ago, but improved slightly from August.
Key Implications
- September’s CPI report should quiet analysts chatter about stagflation. Without the continued sharp increase in the price of used vehicles, inflation would have been essentially flat in September.
- Not surprisingly the weakening in inflation pressures is seen most notably on the services side. Core services inflation was back down to only 1.9% year/year in September, matching June’s pace. You have to go back to 2011 to see services inflation pressures as soft as that. Inflation for core goods has heated up since June, and are now up 1.0% year/year. However, many of the price increases do not look sustainable.
- Even with significant support from monetary policy, inflation pressures remain very benign in the U.S. economy, and we expect it to remain so over the next couple of years.
