Consumer-price inflation has been below 1 percent all this year and less than 2 percent since the end of 2013. Core inflation, which excludes volatile food and energy prices, accelerated to 1.1 percent from 1 percent. While 1.9% is below the Fed’s 2.0% inflation target, it is close enough to justify a rate increase from the Federal Reserve in December. Unless that decline is repeated this November – which it won’t be – the annual inflation rate will mechanically rise.
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Maike Currie, associate investment director at Fidelity worldwide, said: “This is the third time this year – and since 1960 – that inflation has been negative”. For the past decade the annualized inflation rate has been 1.9%.
Core CPI’s monthly percentage change is graphed below.
The overall consumer price index has risen a mere 0.2 percent from a year ago. Inflation first fell into negative territory in April – prices dropped for the first time in over 50 years. Over the year, gasoline has fallen 27.8 per cent. “The strong pound and weak external costs are likely to continue to bear down on prices of items with a high import content”, Citi economist Michael Saunders said.
Another 0.2% gain was seen for the year-over-year reading on headline CPI.
Reiterating his stance that a rate cut was as plausible as a rate rise, he said that a hike in the cost of borrowing now would ‘increase unnecessarily the chances of the economy falling below critical velocity’.
“Deflation is likely to prove brief and marginal and it is highly unlikely that consumers will be tempted to start delaying purchases in anticipation of falling prices”. But that was more than offset by a 0.4% fall in food prices over the month, as supermarket price rivalry continued unabated, and a decline in the price of wine, spirits and tobacco.
The FTSE 100 Index had its biggest one day rise in 6 weeks with defence industry stocks stronger in the wake of last week’s Paris attacks.
Over the year, core prices increased 2.5 percent, due mainly to higher shelter, apparel and education and communication prices. In a report released on Tuesday, the Federal Reserve stated that industrial production declined by a seasonally adjusted figure of 0.2% for October, disappointing market expectations for an increase of 0.1%.
Graphed below are groceries, otherwise known as the food at home index.
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The Labor Department’s gauge of wholesale prices, which includes 75 percent of all US goods and services, decreased 0.4 percent in October from the prior month as costs fell for food and new-model light trucks.
