Daily Spotlight: Inflation Remains an Issue

Summary

Two important inflation reports were released this week. Both indicated that overall pricing pressures continue their downward trek, but both also confirmed that inflation remains above the Fed’s 2%. Let’s first take a deeper dive into the Consumer Price Index (CPI). There were some positive results here. According to the latest report, the month-over-month inflation rate increased 0.2%, in line with expectations and consistent with tame readings over the past six months. That good news was accompanied by a consistent month-over-month reading in core CPI, which excludes the impact of food and energy and rose 0.3% in the past month, the same as in the prior three months. Why is core CPI higher than the overall number? Transportation Services (+8.2% YOY) and Shelter (+4.9%). These elements of the index have prices that don’t typically fall sharply, or even at all. In contrast, prices for Gasoline and New and Used Cars are lower year over year. The other inflation report was the Producer Price Index (PPI). PPI measures pricing trends farther up the supply chain, at the manufacturing level. Here, we saw mixed trends. The PPI final demand annual rate through October was 2.4%, compared to 1.9% in September; and the PPI intermediate demand rate for processed goods was negative at -1.2%. We expect pricing pressures to ease further as the housing market cools off, supplies of new vehicles are replenished, and the p