- Consumer prices were flat month/month in October, a tad softer than expectations. Total CPI was up 1.2% year-on-year in October, decelerating slightly from a 1.4% pace in September.
- Core inflation was also unchanged in October, also softer than expectations. As a result, core inflation cooled slightly to 1.6% on a year/year basis, after running at 1.7% for a couple of months.
- Within core inflation, a 0.1% month/month increase in the shelter index was offset by a 0.4% drop in the index for medical care. Medical care services inflation has been decelerating sharply after past price hikes had taken the measure to 6% year/year earlier this year. Still, prices remain 3.7% higher than a year ago.
- Price moves elsewhere in the core index continue to reflect corrections from sharp pandemic swings. The indexes for airline fares (+6.3%, m/m), recreation (+0.4%, m/m), and new vehicles (+0.4%, m/m) were among those to rise, while the indexes for motor vehicle insurance (-2.3%, m/m), apparel (-1.2%, m/m) and household furnishings and operations (-0.5%, m/m), declined.
- Zooming out from all those monthly moves, price pressures for core services remained soft in October (+0.1%, m/m). On a year/year basis core services inflation was only 1.7%, the softest pace since 2011. On the other side of the coin, core goods inflation continued to move up, and is now +1.2% year/year in October. For most of the past 30 years, inflation for services has run well ahead of goods, and the only instances the measures were this close together were during or after recessionary periods where services inflation declined.
- Energy prices rose only 0.1% on the month in October, and are still down 9.2% versus a year ago. Food prices rose 0.2% month/month in October, and are 3.9% higher than a year ago. 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 October.
- In-person data collection continued to be suspended by the Bureau of Labor Statistics in October. Response rates remain lower than they were a year ago, but improved slightly from September. However, the BLS noted that data collection in October was affected by the temporary closing or limited operations of certain types of establishments, which resulted in an increase in the number of imputed prices.
Key Implications
- October’s CPI report chalked up another month of soft inflation pressures in the U.S. economy, driven by a cooling in services price inflation as you would expect during a recovery from a deep recession. The cooling in services price pressures also can’t entirely be blamed on the idiosyncratic moves in medical care inflation. Shelter inflation, which carries a heavy weight in the basket, has trended lower to 2% year/year, after being above 3% prior to the pandemic.
- Since core services prices account for about 60% of the consumer basket, it is difficult for inflation to pick up speed without some price pressures there. We expect stronger services inflation is some ways away, with unemployment elevated, and the pandemic now in a third wave across the country. This will help keep a lid on economy-wide inflation pressures over the next couple of years.
