The BLS reported the CPI Rose 0.3% for the month, most of which stems from energy and owners equivalent rent.

The BLS also noted the indexes for prescription drugs were incorrect as published for May 2016 through August 2016. This affected the U.S. All Items Index back through May. Corrections have been loaded to the databases.

The 0.3% rise for the month, matched the Econoday Consensus.

Highlights

Progress is being made at the headline level but less so on the core. Consumer prices rose a noticeable and as-expected 0.3 percent in September with energy surging 2.9 percent on the month and owners’ equivalent rent up 0.4 percent, two important areas of strength. The year-on-year rate for the CPI is up 4 tenths to plus 1.5 percent which is the highest since October 2014.

However, when excluding energy and also food, which was flat in the month, the price increase slows to only 0.1 percent which is below Econoday’s low forecast. The core’s year-on-year rate is down 1 tenth to 2.2 percent. This latter rate runs about 1/2 percentage point above the Fed’s target rate, the PCE core, but it’s the direction that counts and the dip does not point to a September increase for the Fed’s gauge.

Weak areas in September include apparel, down 0.7 percent on the month, and communications, down 0.8 percent. New vehicle prices are down 0.1 percent with used vehicles down 0.3 percent.

The Bureau of Labor Statistics has revised the all-items index back to May last year for corrections in the prescription drug index. The year-to-date gain for the all-items index is 1.7 percent vs plus 0.6 percent at this time last year. In another note in this report and a reminder of how soft inflation has been, the government has set the 2017 Social Security cost of living adjustment at plus 0.3 percent.

Inflation may be improving but the risk that accommodative monetary policy will overshoot the Fed’s 2 percent target is not front and center, especially at a November FOMC that will immediately precede the presidential election. The December FOMC, however, is another story but there’s still plenty of data to go.

CPI-U “Progress”

(Click on image to enlarge)

The above chart and following comments from the BLS.

Food

The food index was unchanged in September, as it was in July and August. The index for food away from home increased 0.2 percent, but the food at home index declined for the fifth consecutive month, falling 0.1 percent. Major grocery store food group indexes were mixed, with three declines and three increases. The index for nonalcoholic beverages fell 0.4 percent in September, its fourth decline in the last 5 months. The fruits and vegetables index, which was unchanged in August, fell 0.3 percent in
September. The index for meats, poultry, fish, and eggs continued to fall, declining 0.2 percent, with the beef index falling 0.5 percent.

Energy

The energy index rose in September, increasing 2.9 percent after being unchanged in August. All major energy component indexes increased. The gasoline index, which fell 0.9 percent in August, rose 5.8 percent in September. (Before seasonal adjustment, gasoline prices increased 2.3 percent in September.) The fuel oil index also increased in September, rising 2.4 percent. The electricity index increased 0.7 percent in September, its third straight increase and largest since December 2014. The index for natural gas also continued to rise, increasing 0.8 percent in September following larger increases in July and August.

The energy index has declined 2.9 percent over the past year; this is the smallest 12-month decline since the period ending October 2014. The gasoline index has declined 6.5 percent over the last year, and the index for fuel oil has decreased 8.5 percent. However, the index for natural gas has risen 2.9 percent over the past year, and the electricity index has advanced slightly, increasing 0.1 percent.

All items less food and energy

The index for all items less food and energy increased 0.1 percent in September after rising 0.3 percent in August. The shelter index increased 0.4 percent in September, reflecting a 0.3-percent increase in the rent index and a 0.4-percent advance in the index for owners’ equivalent rent. The index for medical care rose, though the 0.2 percent increase in September was the smallest increase since March. The index for
prescription drugs increased 0.8 percent, while the hospital services index was unchanged. The index for motor vehicle insurance continued to rise, increasing 0.4 percent in September. The personal care index increased in September, advancing 0.4 percent. The index for airline fares rose 0.4 percent, following declines in July and August. The index for tobacco also increased 0.4 percent, while the alcoholic
beverages index rose 0.3 percent and the education index advanced 0.2 percent.
In contrast to these increases, several indexes declined in September. The index for communication fell 0.8 percent, its largest decline since October 2014, and the apparel index decreased 0.7 percent. The index for used cars and trucks continued to fall, declining 0.3 percent in September. The indexes for new vehicles and for recreation both fell 0.1 percent, while the index for household furnishings and
operations was unchanged.

Economic Parrots vs. Thinking Humans

The average economic parrot does not think. It simply squawks a programmed line that rising prices are a good thing.

In contrast to parrots, the average person on the street does not believe rising gas prices are a good thing. Moreover, the average renter does not believe rising rent is a good thing. Finally, the average person is happy when food prices drop.

By the time someone is in 4th or 5th grade, if not before, they like to get more for their money.

It takes years of economic brainwashing to turn ordinary people into parrots who believe it's a good thing to get less for your money.

— Mike Mish Shedlock (@MishGEA) October 18, 2016