October 2009 Consumer Price Index Rises 0.3 Percent
Posted by Gregg Killoren on November 19, 2009
On a seasonally adjusted basis, the CPI-U increased 0.3 percent in October 2009 after rising 0.2 percent in September, according to the U.S. Bureau of Labor Statistics (BLS). The index for all items less food and energy increased 0.2 percent in October, the same increase as in September. Both figures were 0 .1 percent above expectations. On a year-over-year basis CPI is down 0.2 percent, the smallest rate of decline since February 2009. The core rate is now up 1.7 percent year-over-year, the highest since June 2009.
Among the areas that caused the increase in the core rate was a 1.6 percent rise in new vehicle prices and a 3.4 percent gain in used cars and trucks. Clearly, this is an unintended consequence of the government’s “cash-for-clunkers” program – encouraging demand for new cars and reducing supply of used cars equals higher prices for everyone.
The full CPI reading was boosted by a 1.5 percent rise in energy prices – a reminder that the price of oil is something to watch as it could stall the economic recovery if energy costs rise too quickly. Owners Equivalent Rent was flat and makes up 24 percent of the CPI, and rents fell by 0.1 percent. Apparel prices fell by 0.4 percent. Medical care rose by 0.2 percent. Overall commodity prices rose by 0.5 percent – mostly due to the increase in energy prices.
Over the next six months, the inflation readings should increase as the year-over-year comparisons grow due to the prior year’s deflation and continued US dollar weakness and higher commodity prices work their way into the economic inflation statistics. How much of an influence these factors have remains to be seen. However, one impact of higher inflation numbers will be pressure on the Fed to raise rates and reduce the monetary supply. That would likely mean a strengthening dollar (as I have observed in a prior article here), declining bond prices and higher yields, and a disruption in equity markets as they try to gauge the impact on the recovery. The next six months will be dicey!
For the full CPI-U release from the BLS, please click on the “Inflation Measures” page on the menu bar above.
