Key Points
- Core CPI declined to 3.0% for the twelve months to September.
- However, consumers expect a strong upturn in inflation in the next twelve months.
According to the delayed BLS report for September, core CPI decreased to 3.0% for the twelve months, matching the headline CPI figure.
Both headline and core CPI are affected by a sharp monthly fall in Owners Equivalent Rent (OER), which declined to 0.12% in September, compared to 0.38% in August. OER is a major component of CPI, accounting for 26% of headline and 33% of core CPI. (Wolf Richter)
However, sticky CPI less Shelter, which excludes OER, also slowed to 3.0% for the twelve months.
The ALICE Essentials Index also indicates that annual inflation slowed to 3.1%. ALICE (orange below) is produced by United Way as an alternative to CPI (blue) to highlight the impact of inflation on low-income earners.
Another alternative inflation measure is Truflation, which tracks up to 15 million online prices to calculate a daily-updated index. Prices are weighted more towards goods than services, which accounts for the lower readings compared to CPI.
Truflation jumped to 2.48% on October 26, the highest since January. The index has increased by 1.9% since April 2, reflecting the impact of tariffs on goods prices.
Consumers are unconvinced that inflation is moderating, with last week’s University of Michigan survey indicating an average expected increase of 4.6% in the next twelve months.
They aren’t buying the Fed’s “transitory” pitch either. Expected price increases over the next five years increased to 3.9% in October, almost double the Fed’s 2.0 percent target.
Conclusion
Consumer inflation is currently close to 3.0%. The University of Michigan survey indicates that consumers expect prices to rise by 4.5% over the next twelve months and that inflation will be persistent rather than “transitory.”
Acknowledgments
- Federal Reserve of St Louis: FRED Data
- University of Michigan: Consumer Surveys
- United for ALICE: Essentials Index
- Truflation: Ford raises projected tariff hit to results, shares drop 3%
- Jim Bianco: Truflation
- Wolf Richter: Something Went Awry at the BLS
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.