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Inflation Watch

U.S. CPI under 2% and poised to cool off

By October 22, 2014No Comments

The Labor Department on Wednesday reported that its consumer-price index rose 0.1% in September from August, as did the core CPI, which excludes food and energy prices. That put both measures up just 1.7% from a year ago.

Credit Suisse estimates that as a result of falling gasoline prices, by the end of the first quarter the CPI will be up less than 1% versus year earlier, all else being equal.

One place there has been inflation is shelter costs, which is primarily rent and imputed rent—what people would pay if they rented the home they own. These were up 3% in September from a year earlier. Absent them, core prices rose a scant 0.9% year over year. Owners Equivalent Rent is the big gorilla in the inflation room. It accounts for 24% of the total CPI and 31% of the core. So why isn’t the accelerating OER rate pushing up the core? Because other factors are offsetting the upward push.

The biggest drag is the downward pressure on goods prices coming from overseas.

Policy makers and economy-watchers now seem more worried about disinflation rather than accelerating inflation. That wasn’t the expectation at the start of the year. In January, economists surveyed by The Wall Street Journal expected inflation–measured by the consumer price index–would end 2014 at a 2.3% annual rate, up from the 1.5% rate of 2013.

(Source: WSJ, BLS)