The official consumer prices index showed that prices in the year to October fell by 0.1 per cent – unchanged from the previous month and the first time that the CPI has shown annual price declines for two months in a row.
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Then, on Tuesday, October’s Consumer Price Index (CPI) report provided evidence that this is feeding through to consumer prices: Inflation in core services ex shelter – which tend to be labor intensive – rose 0.39% month-over-month.
The consumer price index measure of inflation has hovered between 0.1 per cent and minus 0.1 per cent for the last eight months – taking out of the equation the 2 per cent target that the Bank uses to set the bank rate.
The report from the Labor Department could help provide the Federal Reserve more evidence that low inflation is stabilizing as it considers raising interest rates next month for the first time in almost a decade. It means that, while the UK’s flirtation with deflation is over, the MPC will want stronger evidence of a real underlying increase in inflation before it pulls the interest rate trigger. Estimates for total CPI ranged from a 0.1 percent decline to a 0.3 percent gain. Graphed below is the overall medical care index, which increased 0.7% for the month and is up 3.0% from a year ago.
“While low inflation need not rule out a hike in the fed funds rate, at the very least it should ensure subsequent rate hikes come at a very gradual rate”, said Richard Moody, chief economist at Regions Financial. Capacity utilization for the industrial sector declined 0.2 percentage point in October to 77.5 percent, a rate that is 2.6 percentage points below its long-run (1972-2014) average.
Regular pay growth – which excludes bonuses – slipped to 2.5% for the July-September period, compared to 2.8% in the three months to October.
Signs of stabilization in prices after a recent downward spiral are likely to be welcomed by Fed officials and give them a few confidence that inflation will gradually move toward the central bank’s 2.0 percent target.
The food index has increased 1.6 percent over the past year, and the index for all items less food and energy has risen 1.9 percent.
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Energy prices rose 0.3% in October, led by a seasonally adjusted 0.4% rise in gasoline costs. In October, it rose by 1.1%. Core costs were up 1.9 percent, matching the September year-to-year change. She says that interest rates could stay low for the foreseeable future if low inflation turns out to be less cyclical than structural.
