The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 10/16/08 For Sep 2008 | |||||||||||||||||||||||||
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Highlights
Consumer price inflation in September came in quite tame - thanks to lower energy and motor vehicle prices. The headline CPI was unchanged, following a 0.1 percent dip the month before. The September headline number matched the consensus forecast for no change. The core rate softened to a 0.1 percent gain in September and came in lower than the consensus forecast for a 0.2 percent rise. As for August, a drop in energy costs - down 1.9 percent for September was the main factor behind flat headline inflation. Also declining were new & used vehicles and apparel. Housing declined but that was due to the energy subcomponent. In contrast, food costs are still seeing the impact of a higher cost structure as food inflation was unchanged at a high 0.6 percent.
The recent decline in crude oil prices is clearly impacting the CPI favorably. Behind the 1.9 percent drop in energy were a 5.8 percent fall in heating oil, a 3.2 percent decline in piped gas & electricity, and a 0.8 percent decrease in motor fuel (minus 0.6 for gasoline).
The slowing in the core was led by decreases for new vehicles, down 0.7 percent; used cars & trucks, down 1.8 percent; public transportation, down 1.0 percent (includes air fares); and apparel, down 0.1 percent.
Year-on-year, the overall CPI dropped to up 4.9 percent (seasonally adjusted) in September from 5.4 percent in August. The core rate was unchanged from a 2.5 percent year-ago boost in August.
The bottom line is that inflation is slowing due to lower energy costs and a flat economy and the good news on inflation is giving the Fed room to keep rates low and keep pumping liquidity.
The consumer price index in August eased sharply on lower energy costs as the headline CPI declined 0.1 percent, following a 0.8 percent jump the month before. Meanwhile, the core rate slowed to a 0.2 percent rise from July's boost of 0.3 percent. Year-on-year, the overall CPI eased to 5.4 percent (seasonally adjusted) in August from 5.5 percent in July. The core rate was unchanged at 2.5 percent. Looking ahead, further weakness in oil prices will likely keep headline inflation soft while sluggish sales should weigh on the core rate. But we could get some reversal in the vehicle component as the GM discounts in August ended.
CPI Consensus Forecast for September 08, m/m: 0.0 percent
Range: -0.3 to +0.3 percent
CPI Consensus Forecast for September 08, y/y: +5.0 percent
Range: +4.7 to +5.2 percent
CPI ex food & energy Consensus Forecast for September 08, m/m: +0.2 percent
Range: +0.1 to +0.4 percent
CPI ex food & energy Consensus Forecast for September 08, y/y: +2.5 percent
Range: +2.3 to +2.7 percent
![[Chart]](chart.gif)
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
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