Consumer Price Index Report Mixed

In a mixed report and underneath a higher-than-expected 0.4 percent rise in overall consumer inflation, a more modest 0.2 percent October gain in core inflation hints at slack in the economy and offers at least some justification for stimulative monetary policy. Year-on-year, consumer prices were up 1.8 percent from October last year for a 1 tenth gain and moving in the Federal Reserve's intended direction. But core prices, which exclude energy and food, moved in the other direction, down 1 tenth to 2.3 percent.

Swings in energy prices are common and evident in October, up 2.7 percent on the month alone. Food was not a factor in the month, up only 0.2 percent.

Turning to core prices, apparel continues to be very weak, down 1.8 percent on the month and down 2.3 percent on the year. Prices for new vehicles are flat, down 0.2 percent and up only 0.1 percent on the year, with airline fares down 0.4 percent and up 1.5 percent from October last year. Computers and related components extended their usual declines with wireless services unchanged and down an annual 2.9 percent.

But the biggest core category for consumers is housing where pressures are mostly steady, up 0.1 percent for rents at a noticeably high 3.7 percent yearly rate and up 0.2 percent for homeowners at a 3.3 percent rate. Medical costs are another major category and they show pressure in October, up 0.9 percent for related services where the yearly increase is 5.1 percent. Health insurance is the major factor here, up 2.2 percent on the month and 20.1 percent on the year.

The specific price gauges that the Federal Reserve tracks are the PCE price indexes which, due to a different methodology, are running about 1/2 point below consumer prices for the year-to-year readings. For monetary policy, this puts the emphasis more on the direction than the level of consumer prices and especially core prices where today's results, with medical costs an exception, are mixed to soft.