Completing October’s Inflation Picture

Today’s CPI report complements yesterday’s PPI report. The result is similar, though less dramatic:

On a seasonally adjusted basis, the CPI-U increased 0.6 percent in October, following a 0.2 percent rise in September. Energy costs, which had declined in each of the preceding three months after advancing sharply in the first half of the year, increased 4.2 percent in October, accounting for over half of the advance in the overall CPI-U.

Irrespective of the increase in energy costs in recent months, inflation does seem to be slowly rising. The following chart illustrates three different inflation measures for goods other than food and energy.

While the overall CPI gives a better indication of the price increases that individuals actually face, stripping out food and energy costs is useful to help discern the underlying pressures and trends in the economy. And this gradual rise in core inflation measures may indicate that firms are indeed slowly gaining pricing power, which in turn may indicate a slow recovery in demand. Though, as always, I must now add my caveat of wondering how sustainable such an increase in demand is…