The Bureau of Labor Statistics reported that the consumer price index (CPI) fell 0.1 percent in October, its first decline since June. This mirrors the producer price index data released yesterday. Energy costs were 2 percent lower in October, reversing the significant increases of the last three months. With this month’s decrease, consumer prices are now up 3.6 percent since October 2010, slightly lower than the 3.9 percent year-over-year increase observed last month.
Food prices were 0.1 percent higher. Consumers benefitted from a large reduction in the price of fruits and vegetables (down 1.7 percent), but most other food and beverage items edged marginally higher. Excluding food and energy costs, core inflation is up 0.1 percent for the month or 2.1 percent year-over-year. Core inflation has edged marginally higher all year.
For the month, the largest price increases were seen in apparel and medical care, but these were offset by lower transportation, recreation and energy costs.
Consumers have reacted to pocket-book issues (as well as domestic and global economic pressures) for the past few months, helping to drive down confidence surveys. The news that consumer inflation has eased somewhat in October is quite welcome. The primary driver of this month’s decline was a fall in energy prices, which have been quite volatile this year.
Pricing pressures will persist – as evidenced by inflation in the 3.5 to 4 percent range year-over-year with core inflation over 2 percent. Yet, this is still moderate enough that the Federal Reserve will focus its efforts on growing the economy, while still keeping an eye on inflationary developments.
Chad Moutray is chief economist, National Association of Manufacturers.