Inflation Check

It’s time to check in with this week’s new data on prices. This morning the BLS released the October data for the consumer price index. The data showed a small-ish increase in the overall rate of inflation in October, and a very slight rise in the core rate of inflation.

Yesterday the BLS provided its estimate of the producer price index for October, which showed a continued rise in energy prices for producers, but a fall in the prices of non-energy final goods and services that firms buy. It’s worth noting that the prices of non-energy intermediate inputs rose at a substantial pace… but firms that supply final goods and services to other firms were apparently unable to pass those price increases along.

As the chart below illustrates, these reports give us a bit of encouragement that perhaps higher energy prices will not feed through to higher non-energy prices. At the very least, there are still no signs that happening as of yet; over the past several months, the inflation rate in non-energy items has fallen, not risen.

I’m slowly becoming reassured that the spike in inflation this year due to higher oil prices will indeed prove to be temporary, though it will take another few months of moderate core inflation data to really set my mind at ease on that score.

On the other hand, this data does nothing to reassure me about my other worry: that the economy may be heading for a noticeable slowdown in the end of 2005 and early 2006. If anything, the continued weakness in pricing power for non-energy items may provide some slight corroboration for the theory that such a slowdown may already be underway.