November 14, 2018

It is difficult to detect any evidence of accelerating inflation in this report. There are no major areas, apart from shelter and auto insurance, where inflation seems to be a problem. And even in these categories there appears to be some evidence of a deceleration in the last few months. The jump in energy prices in October is almost certainly an anomaly. World oil prices have been falling sharply in the last two weeks. Even if this decline does not stick, the direction of energy prices for the immediate future is more likely down than up.

The annualized inflation for the overall CPI comparing the last three months (August, September, October) with the prior three months (May, June, and July) is 2.1 percent, down slightly from the 2.5 percent year-over-year figure. The same calculation for the core index shows an annualized inflation rate of just 1.8 percent, while for the core index without shelter, it just 1.0 percent.

There is a similar story at earlier stages of production. While there are some narrow commodity groups that are showing rapid price increases, there is no evidence of any upward trend in either the overall final demand index or the core final demand index. In short, in spite of low unemployment and a modest uptick in the rate of wage growth, there continues to be no reason to believe that inflation will pose a problem in the near future.

For more, check out the latest Prices Byte.