Inflation Update

The BLS just released the September CPI report. It shows a bit of an uptick in the core rate of inflation (mostly due to an increase in the price of “lodging away from home”), which may be a signal that the economy is at least not weakening further. The rate of overall inflation was also moderate in September, though the surge in oil prices have still caused fairly large year-over-year price changes in recent months, as the picture below shows.

I’d like to see the core rate of 12-month CPI changes stick at around 2.0% for a few more months, as an indicator of good health in the economy. October’s report is likely to be dominated by sharply higher energy costs, which will have competing effects on the core rate: to some degree higher energy costs spill over into other prices, which may boost the core rate; but higher energy costs also slow the economy, which tends to slow the core rate of inflation. Your guess is as good as mine as to which force will win.