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Core CPI, the number to care about, plummeted this month

The BLS announced CPI figures for October today, and the month-over-month headline rate was slightly higher than last month while the core rate was down substantially:

On a year-over-year basis, headline inflation came in at 7.7%, half a point lower than last month. Core CPI rang in at 6.3%, a little lower than last month.

As always, though, the monthly figures are the ones to watch. In particular, you should follow the trendlines, which continue to drop for both headline and core inflation.

The big newspapers all reported that inflation was "easing," which is the right take. But they underestimated just how much it was easing because reporters focus on headline inflation and on the useless annual figures. That's precisely the opposite of what they should do. The meaningful data is core inflation measured monthly, and in October it plummeted to 3.3% on an annualized basis. That's noisy data, so don't take it too seriously, but at the same time it's very good news. Headline inflation may still be elevated, but that's mostly because of food and energy, something that neither the Fed nor the government can do anything about. By contrast, core inflation measures the bedrock economy, and this month's figures say the economy is in pretty good shape.

10 thoughts on “Core CPI, the number to care about, plummeted this month

  1. golack

    I'm sure the Fed will take all the credit (literally???), like the rooster does when the Sun rises....

    Some rate increases were needed and definitely the unwinding of the quantitative easing was useful. That burst some bubbles and asset inflation triggered by Trumps tax give away to the wealthy along with Fed cheap money policies. The problem certainly wasn't all Biden's stimulus packages. With crypto waning, computer chips are now available. Plus people are easing up on gaming machines for home now that they can go out.

    Unfortunately the Fed way overshot--but the best we can hope for is that they'll stop raising rates. My guess is that they'll go with a smaller increase now because inflation hasn't crashed and burned--accentuating the business cycle, not dampening it.

  2. middleoftheroaddem

    “Headline inflation may still be elevated, but that's mostly because of food and energy, something that neither the Fed nor the government can do anything about.” - Am I missing something or does the US government still have legislative and regulatory powers? You honestly believe there is nothing the government can do to impact supply?

    “…headline inflation came in at 7.7%.” – headline inflation is most representative of the lived experience of most Americans.

    1. skeptonomist

      Americans have experienced 7.7% inflation over the past year - that is a fact. But if you want to predict inflation - which is what the Fed is supposed to do in order to adjust policy - you have do a lot more than look at that number. Inflation can turn around very fast - consider what happened in 2008 when oil price dropped. The month/month numbers are more useful for prediction.

      Drawing trend lines is not good prediction, but Kevin and other such as Paul Krugman have been looking at the factors which actually cause inflation and they have generally been indicating lower inflationary pressure.

      And again, do not go by the headlines in the media. High inflation is sensational and the media choose to feature the biggest numbers for that reason.

  3. raoul

    So the Fed rates increased the last few months are greater than inflation (if inflation target is 2.5%, core is just .8 above that)- basically the Fed overshot it’s target by many percentage points- one could say that Powell is not as sharp as he is but others believe that the Fed always wanted to go back to the pre 2000 ranges to benefit the wealthy class and the present situation provided the pretext. As stated numerous time, rate increases have have zero direct impact on current actual inflationary pressures.

    1. cmayo

      Or maybe it's just that the Fed only has a blunt hammer, and is way too sensitive to pressure from anti-inflationistas (i.e., the rentier class) who get a big assist from the media and people with regular savings.

      Further, as you state, rate increases really only impact inflation in certain circumstances, and the circumstances of this round of inflation (corporate profiteering, war, and supplies) are really not going to be impacted by rate increases except insofar as the rate increases make people's (new) housing payments go up so that overall demand decreases slightly.

      I do think there's something of an argument to have rates higher so that you can drop them quickly during a recession, but that doesn't mean you should raise them as quickly as Powell did.

  4. cmayo

    It's almost like oligopolies and monopolies figure they can't really keep raising prices as they've already raised them as high as they think the market can bear. For now.

  5. Post-Keynesian

    Some thoughts about the "Fed and the government" being able to do anything about food and energy prices: market concentration reduces competition and promotes market power, thus the ability for sellers to raise prices and and profits far beyond what competitive markets would. Anti-trust policies have been practically nonexistent for decades. We should be much more aggressive in clamping down on anti-competitive mergers. The large profits of the oil companies need to be taxed heavily and incentives introduced for limiting price increases. The tax revenues could be returned to consumers as compensation for predatory pricing.

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