Consumer Inflation Confirmed After Weak Wholesale Inflation

Measuring the true rate of inflation might not be as easy as it seems. After a weak wholesale inflation reading for September from the Producer Price Index (PPI), consumer inflation ticked up in September. The U.S. Bureau of Labor Statistics has reported that September’s Consumer Price Index (CPI) was flat (0.0%). The core CPI reading, which eliminates food and energy, was up by 0.1%.

Dow Jones had published consensus estimates for a gain of 0.1% on the headline CPI and a gain of 0.2% on the core CPI reading.

Where things get tricky is in the year-over-year measurements. The headline CPI was up 1.7% from September of 2018, but the core CPI reading (again, excluding food and energy) was up by 2.4%. The consensus estimates for the annual readings were 1.8% for headline CPI and 2.4% for core CPI.

There is often a lag between wholesale price changes and consumer price changes for multiple reasons. Businesses have a hard time passing on costs, or perhaps they have certain prices locked in for a period. Either way, the tariffs to this point are not creating the havoc in pricing that many have been worried about, and the Federal Reserve’s 2% inflation target is just not a major worry at this point.

Contributing to the weakness in the CPI were weaker than expected prices received for goods and services. That sounds like pricing power is an issue. That said, the energy component of CPI was down 1.4%, along with a 2.4% drop in the price of gasoline. Prices of used cars and trucks were also down by 1.6% from the prior month.

The food prices index increased by just 0.1% on the monthly reading in September, after having been unchanged in the prior three reports.

The food index increased 1.8% over the last year, while the energy index was lower by 4.8%.

The Federal Reserve may count the personal consumption expenditures index as its true benchmark on inflation, but this reading also has been weak in recent months, with just a 1.4% gain in the prior month.