Consumer Price Index Rises Less Than Expected

Moderation in both housing and medical costs is the dovish story behind September's consumer price report, factors that held down the core rate to a lower-than-expected 0.1 percent gain. The core excludes food and also energy which spiked a hurricane-driven 6.1 percent to lift the overall rate to an outsized looking 0.5 percent.

But it's the fundamental costs that look soft in September's report. Housing rose only 0.2 percent in the month, which is half of August's gain, with the closely watched owners' equivalent rent component slowing 1 tenth to 0.2 percent. Medical care actually went into reverse at minus 0.1 percent. Prescription drugs were very soft here, down 0.6 percent with nonprescription drugs down 1.4 percent. Apparel is also in the negative column at minus 0.1 percent to end a positive run of gains while both new and used vehicles fell, down 0.4 and 0.2 percent respectively.

Positive traction includes wireless services which have been moving in reverse most of the year though posting a 0.4 percent September rise. Recreation posted a 2nd straight 0.2 percent gain while food was a non-factor once again, up 0.1 perccent.

Year-on-year rates won't be alarming the hawks at the FOMC, down 1 tenth to 2.2 percent overall and holding, for a 5th month in a row, at a subpar 1.7 percent for the core. This report, which did show pressure in August, is not showing the same pressure in September and offsets, at least to a degree, the significant signs of wage pressures in September's employment report. Today's report will soften the inflation debate at the month-end FOMC. The Department of Labor is downplaying any hurricane impacts on the report though it does note that data collection in Florida was impacted slightly.

Recent History Of This Indicator:
The 0.2 percent gain for core consumer prices was perhaps the most important economic data coming out of the month of August. Though it didn't translate into strength for the Federal Reserve's preferred inflation reading, core PCE prices, it did foreshadow an outsized September gain and upward revisions for wages (average hourly earnings). Forecasters don't see a major gain for September's core CPI, at a consensus 0.2 percent repeat, but they do see energy-related strength for the overall CPI where the consensus is 0.6 percent in what would follow a 0.4 percent gain in August that also was boosted by higher fuel costs. Year-on-year rates are expected to rise, to 2.3 percent overall in what would be a 4 tenths increase and 1.8 percent for the core in what would be a 1 tenth improvement.