According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 2.5 % year-over-year (higher than the 2.3 % last month) - headlines say up 0.3 % month-over-month. The year-over-year core inflation (excludes energy and food) rate was also marginally declined from 2.2 % to 2.1 %, and continues to be above the target set by the Federal Reserve.

Analyst Opinion of the Consumer Price Index

Energy and used cars were the main driver for year-over-year inflation. Core inflation remains above 2.0 % year-over-year.

The market expected (from Econoday):

As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as an economic indicator.

The major influence on the CPI was energy.

An increase in the gasoline index was responsible for over one-third of the
seasonally adjusted increase in the all items index; advances in the indexes for
shelter, used cars and trucks, and electricity also contributed. The increases
in the gasoline and electricity indexes led to a 2.4-percent rise in the energy
index. The food index, in contrast, declined slightly in October. 

The index for all items less food and energy rose 0.2 percent in October
following a 0.1-percent increase in September. Along with the indexes for
shelter and for used cars and trucks, the indexes for medical care, household
furnishings and operations, motor vehicle insurance, and tobacco all increased
in October. The indexes for communication, new vehicles, and recreation all
declined. 

The all items index rose 2.5 percent for the 12 months ending October, a larger
increase than the 2.3-percent increase for the 12 months ending September. The
index for all items less food and energy rose 2.1 percent for the 12 months
ending October. The energy index increased 8.9 percent, while the food index
increased more modestly, advancing 1.2 percent over the last 12 months.  

Historically, the CPI-U general index tends to correlate over time with the CPI-U's food index. The current situation is putting an upward pressure on the CPI.

CPI-U Index compared to the Food sub-Index of CPI-U

Notice the gap in the above graphic between the CPI and Food - historically this gap has always closed when the knock-on effect from higher food prices into other CPI components moderates.

The graphs below compare health care to the CPI-U.

Month-over-Month Change CPI-U Index (red line) compared to the Medical Care sub-Index of CPI-U (blue line)

Year-over-Year Change CPI-U Index (red line) compared to the Medical Care sub-Index of CPI-U (blue line)

The Federal Reserve has argued that energy inflation automatically slows the economy without having to intervene with its monetary policy tools. This is the primary reason the Fed wants to exclude energy from analysis of consumer price increases (the inflation rate).

In the above chart - the green boxes are significant elements moderating inflation, while the red boxed items are significant elements fueling inflation.

The graph below looks at the different price changes seen by the BEA in this PCE release versus the BEA's GDP and BLS' Consumer Price Index (CPI).

Year-over-Year Change - PCE's Price Index (blue line) versus CPI-U (red line) versus GDP Deflator (green line)

Caveats on the Use of the Consumer Price Index

Econintersect has performed several tests on this series and finds it fairly representative of price changes (inflation). However, the headline rate is an average - and will not correspond to the price changes seen by any specific person or on a particular subject.

Although the CPI represents the costs of some mythical person. Each of us needs to provide a multiplier to the BLS numbers to make this index representative of our individual situation. This mythical person envisioned spending pattern would be approximately:

The average Joe Sixpack budgets to spend his entire paycheck or retirement income - so even small changes have a large impact to a budget.

The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913, and numbers are conveniently available from the FRED repository (here). Long-term inflation charts reach back to 1872 by adding Warren and Pearson's price index for the earlier years. The spliced series is available at Yale Professor (and Nobel laureate) Robert Shiller's website. This look further back into the past dramatically illustrates the extreme oscillation between inflation and deflation during the first 70 years of our timeline. Click here for additional perspectives on inflation and the shrinking value of the dollar.

Because of the nuances in determining the month-over-month index values, the year-over-year or annual change in the Consumer Price Index is preferred for comparisons.

Econintersect has analyzed both food and energy showing that food moves synchronously with core.