There was no break from the heat in October’s CPI report, as seasonally adjusted prices rose 0.9% month-on-month (m/m) from up 0.4% in September. As a result, headline inflation was 6.2% year-on-year (y/y), the fastest pace in over 30 years.
Core inflation (ex. food and energy) also picked up to a 0.6% m/m increase, from 0.2% in September. That saw the year-on-year rate of core inflation pick up to 4.6%, also a 30-year high.
Energy prices were a big part of the story, up 4.8% m/m, driven mostly by gasoline (+6.1% m/m), but natural gas prices were also up sharply (+6.6% m/m). Energy prices are now up 30% versus a year ago, the fastest pace since 2005. Food prices also continued to see healthy increases (+0.9% m/m) and are 5.3% higher than a year ago.
Core prices were lifted by a 0.5% m/m increase in the heavily-weighted shelter component. Rents and owners’ equivalent rent rose 0.4% m/m, and lodging away from home jumped up 1.4% m/m. Used vehicle prices rose again in October (+2.5% m/m), and are up 26.4% versus a year ago. New vehicle prices were also up sharply (+1.4% m/m), and are nearly 10% higher than a year ago.
Other big increases included prices for medical care (+0.5% m/m), which saw big price gains for services and goods. One of the few prices to fall were airline fares (-0.7% m/m), which have fallen for four consecutive months.
Key Implications
October’s inflation report is one superlative after another: the fastest pace in 30 years and many categories seeing historically large price increases. Sometimes you can point to certain outsized gains in specific categories for higher-than-expected inflation, but October’s report had solid price increases nearly everywhere. Price pressures may ease alongside supply chain issues, but it is clear that healthy demand for nearly everything, as the economy recovers from the pandemic, has overwhelmed supply.
Energy has been a headline grabbing story, and we recently upgraded our energy price forecasts. Higher energy prices are likely to weigh on growth and boost inflation in the coming quarters as they take a bite out of purchasing power.
It looks like transitory does not mean short-lived. Stronger inflation pressures will likely lead the Fed to lift interest rates next summer, earlier than in our September forecast.
