The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 11/19/08 For Oct 2008 | |||||||||||||||||||||||||
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Highlights
Consumer price inflation was pulled down by energy in October but other components also pointed to weak consumer demand. The headline CPI fell 1.0 percent in October, following a flat reading the prior month. The October headline came in lower than the consensus forecast for a drop of 0.7 percent. Price weakening, however, was more pervasive than just in energy. The core rate in October dipped 0.1 percent after edging up 0.1 percent in September. The core figure was softer than the market forecast for a 0.1 percent rise. Notably weak were vehicles and apparel.
Year-on-year, the overall CPI eased to up 3.7 percent (seasonally adjusted) in October from 4.9 percent in September. The year-ago core rate declined to up 2.2 percent, compared to up 2.5 percent in September.
Today's report not only shows inflation slowing from lower energy costs but also from weak import prices and declining consumer demand. The bottom line is that inflation is improving for good (lower energy) and bad (recession) reasons.
The consumer price index in September came in quite tame - thanks to lower energy and motor vehicle prices. The headline CPI was unchanged, following a 0.1 percent dip the month before. The core rate softened to a 0.1 percent gain in September. A drop in energy costs - down 1.9 percent for September - was the main factor behind flat headline inflation. Also declining were new & used vehicles and apparel. We can expect another low headline number for October thanks to declining energy costs. Also, with retail sales so weak, retailers are likely discounting more and that likely will show up in the core number.
CPI Consensus Forecast for October 08, m/m: -0.7 percent
Range: -1.4 to -0.1 percent
CPI Consensus Forecast for October 08, y/y: +4.0 percent
Range: +3.2 to +4.9 percent
CPI ex food & energy Consensus Forecast for October 08, m/m: +0.1 percent
Range: 0.0 to +0.3 percent
CPI ex food & energy Consensus Forecast for October 08, y/y: +2.4 percent
Range: +2.2 to +2.6 percent
![[Chart]](chart.gif)
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
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