24/7 Wall St.

Well, it looks like muted prices for no Social Security hike for the cost of living adjustment are being justified for at least another month (followed by more ahead). September’s Consumer Price Index (CPI) was weak enough that consumers can consider it deflationary. The U.S. Labor Department has shown that plunging gasoline costs are mostly keeping a lid on inflation, creating just that much more of a challenge for Janet Yellen and the Federal Reserve in that quest to finally raise interest rates.

September’s headline reading for the Consumer Price Index fell by 0.2%. This was more or less in-line with expectations. On a year-over-year basis, the headline CPI is now flat against the gain of 0.2% in August’s annualized comparison.

The core CPI reading, which excludes food and energy, actually managed to show a gain of 0.2% in September. It was expected to be up by about 0.1%. On an annualized basis versus a year ago, that CPI reading is now up 1.9% from 1.8% the prior month.

24/7 Wall St. received some comments from the chief economist at Stifel Fixed Income, Lindsey Piegza. She said of the September inflationary data:

Following significant price reprieve reported yesterday with a 0.5% drop in the headline PPI, a further decline in consumer prices continues to undermine the Fed’s outlook for rising inflation levels near-term. Plunging energy costs helped lead the headline CPI further away from the Committee’s longer-term objective of 2%, however, rising rental costs helped to supplement the core index. Keep in mind, however, that rising housing costs do not necessarily reflect widespread inflation pressures but rather sector specific price adjustments as a result of tight inventory levels; isolated, sector-specific price pressures are unlikely to feed through into the broad economy. Excluding rising housing costs, the CPI is firmly negative, reinforcing the need for the Fed to exercise patience, and furthermore, wait for additional evidence inflation is beginning to push back towards policymaker’s 2% target.

The long and short of the matter is that the Federal Reserve is going to have to be quite creative when it comes to finding inflation. Perhaps a zero cost of living adjustment (COLA) for Social Security may tell the Fed and Janet Yellen all they need to know.

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