Core US Inflation Slowest in Decades, September 2010 Consumer Prices Rise 0.1%

U.S. inflation slowed more than expected in September as consumer prices eased from their prior monthly level, government data showed Friday. The core annual inflation rate declined to the lowest point in nearly five decades, raising worries of deflation and supporting expectations for another round of quantitative easing by the Fed.

The Consumer Price Index, the most closely watched indicator of inflation, rose 0.1 percent in September after a pick up of 0.3 percent in August, the Labor Department said. Leading gains were energy and food costs, with the latter jumping 0.3 percent to mark its biggest increase since October 2008. Energy prices rose 0.7 percent, which was down from the 2.3 percent increase in August.

Core prices, which excludes out volatile food and energy costs, remained unchanged for a second straight month after falling 0.1 percent in July.

Inflation over the past 12 months climbed 1.1 percent, matching the rate in August. Core inflation on an annual basis, however, rose just 0.8 percent — the lowest 12-month increase since March 1961. The reading during each of the five prior months had been 0.9 percent, which was the lowest since January 1966. And, notably, even then below the Federal Reserve’s preferred range of 1-2 percent.

The smaller core rate adds deepening trepidation for deflation, which is a persistent drop in prices, or the opposite of inflation. The Federal Reserve in September had already noted inflation was below target levels. At a speech in Boston right before the Labor Department’s CPI data was released on Friday, Federal Reserve Chairman Ben Bernanke voiced further concern, making a case to print more money to spur inflation and economic growth.

"Inflation is running at rates that are too low relative to the levels that the Committee judges to be most consistent with the Federal Reserve’s dual mandate in the longer run. In particular, at current rates of inflation, the constraint imposed by the zero lower bound on nominal interest rates is too tight (the short-term real interest rate is too high, given the state of the economy), and the risk of deflation is higher than desirable.

Given that monetary policy works with a lag, the more relevant question is whether this situation is forecast to continue. In light of the recent decline in inflation, the degree of slack in the economy, and the relative stability of inflation expectations, it is reasonable to forecast that underlying inflation — setting aside the inevitable short-run volatility — will be less than the mandate-consistent inflation rate for some time."

Most analysts now expect that the Fed may dump billions of dollars into the economy in what is being dubbed by many as "quantitative easing 2.0."

CPI details as reported by the Labor Department follow:

September 2010 Consumer Price Gains (%)

Mar Apr May Jun Jul Aug Sept 12
Month
All items 0.1 -0.1 -0.2 -0.1 0.3 0.3 0.1 1.1
  Food 0.2 0.2 .0 .0 -0.1 0.2 0.3 1.4
    Food at home 0.5 0.2 .0 -0.1 -0.1 .0 0.3 1.4
    Food away from home .0 0.1 0.1 0.1 .0 0.3 0.3 1.4
  Energy .0 -1.4 -2.9 -2.9 2.6 2.3 0.7 3.8
    Energy commodities -1 -2.1 -4.8 -4.1 4 3.8 1.8 5.8
      Gasoline (all types) -0.8 -2.4 -5.2 -4.5 4.6 3.9 1.6 5.1
      Fuel oil 0.7 2.3 -1.4 -3.2 -1.6 0.9 0.8 11.8
    Energy services 1.4 -0.5 -0.5 -1.6 0.8 0.4 -0.8 1.5
      Electricity 2.1 0.7 -0.4 -2.2 0.5 0.2 -0.3 1.1
      Utility (piped) gas service -0.7 -4.4 -1 0.6 1.7 1.1 -2.3 3.0
  All items less food, energy .0 .0 0.1 0.2 0.1 .0 .0 0.8
    Comm. less food, energy -0.1 -0.3 0.1 0.2 0.2 0.1 -0.2 0.8
      New vehicles 0.1 .0 0.1 0.1 0.1 0.3 0.1 2.1
      Used cars and trucks 0.5 0.2 0.6 0.9 0.8 0.7 -0.7 12.9
      Apparel -0.4 -0.7 0.2 0.8 0.6 -0.1 -0.6 -1.2
      Medical care 0.4 0.2 0.1 .0 -0.2 0.2 0.3 2.6
    Services less energy 0.1 0.2 0.1 0.1 0.1 .0 0.1 0.8
      Shelter -0.1 .0 0.1 0.1 0.1 .0 .0 -0.4
      Transportation 0.4 0.4 0.4 .0 .0 0.1 0.3 3.0
      Medical care 0.3 0.3 .0 0.4 .0 0.2 0.8 3.7

 

The Labor Department’s Consumer Price Index for October 2010 is scheduled for release on Wednesday, November 17, 2010, at 8:30 a.m. (EDT). The CPI data is used as the core engine for the US Inflation Calculator.

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