The Labor Dept. reported that headline inflation fell 0.2% in September from August and was flat or zero on a year over year basis. However, the core CPI which excludes volatile food and energy was up 0.2% over the previous month and increased 1.9% year over year, marking its biggest gain in a year.
Majority of the gain in the core CPI was driven by shelter costs which increased 3.2%. However, the inflation measure preferred by the Federal Reserve, core PCE has a 20% weighting to shelter costs vs. the core CPI which has 40%. Estimates are that the core PCE increased just 1.3% year over year, which is below the Fed’s 2% comfort level.
While inflation is not a worry yet, improving labor markets and wages could subsequently add more fuel to fire in the future. Something we are keeping an eye on.
(Source: WSJ, BLS)