Implications: Consumer prices rose 0.6% for the second straight month in September. Energy, which was up 4.5%, drove the lion's share of the price increases. Excluding energy, prices were up 0.1%, the same gain as the "core" CPI, which excludes food and energy. The overall CPI is up 2% in the past year, the same increase as the core. Both figures are right at the Federal Reserve's 2% target. But don't pop the champagne just yet. We expect inflation to pick up to 3% or more by the end of next year. Monetary policy is loose and rising housing costs (which are measured by rents, not asset values) are going to put upward pressure on prices. Owners' equivalent rent was up 0.2% in September and is up 2.1% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. It's important to recognize that inflation getting above the Fed's stated objective will not change the Fed's monetary policy anytime soon. The Fed is now focused on the labor market and is likely to let inflation exceed its long-term target for a prolonged period of time. On the earnings front, "real" (inflation-adjusted) wages per hour were down 0.3% in August and are down 0.2% from a year ago. Worker hours are up 2% in the past year, which means purchasing power is still growing.
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Posted on Tuesday, October 16, 2012 @ 9:56 AM
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