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First Cut: September CPI shows price increases remain tepid

The September Consumer Price Index (CPI) was flat month-over-month and up 1.7% compared to a year-ago. The CPI excluding food and energy was up 0.1% in September from August and up 2.4% year-over-year. Prices for food and beverages were up 0.1% for the month. Energy costs were down 1.4%, mainly on a drop in gasoline prices of 2.4%. Overall, price increases remain tepid.

Shelter costs – which make up about a third of the CPI basket – were up 0.3% month-over-month and up 3.5% year-over-year. Costs for housing remain a consistent source of upward pressure for prices. Excluding shelter only, the CPI was down 0.1% and up only 0.8% from September 2018.

Commodities costs continued to exert little or no pressure on prices and were down 0.4% in September from the prior month and unchanged compared to a year-ago. On the other hand, services are increasing at a steady pace and were up 0.2% in September from August and 2.8% higher than a year-ago. Prices associated with healthcare are still rising faster than most others. Medical care services were up 0.4% in September (weight 7.046) in part on a sharp rise for health insurance of up 1.4%. Health insurance was up 18.8% compared to a year ago.

This is the last major inflation report the FOMC will have in hand when they meet on October 29-30. The Committee’s preferred measure of the PCE deflator will not be available until 8:30 ET on Thursday, October 31. If worries about too low inflation are a major reason for further rate cuts, the CPI should give policymakers enough room to make that choice in combination with hints of a cooling in the labor market.

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