The government said Tuesday that the CPI rose by a seasonally adjusted 0.2% last month. 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. Four of the six major grocery store food group indexes rose last month, with cereals and bakery products posting the largest increase since August 2011.
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Michael Saunders, Citigroup’s chief United Kingdom economist, said the United Kingdom was on course for inflation of just 0.1 per cent in 2015. Cut backs in energy production and a warm October that limited utility output may have caused overall industrial to decline, but there was a solid rise in manufacturing production, especially durable goods. Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors.
The dollar was trading higher against a basket of currencies, while prices for U.S. Treasuries fell.
The market agrees with that assessment, as the CMEGroup’s Fedwatch tool puts the current implied probability of a December rate hike at 68 percent.
Still, overall inflation has risen just 0.2% in the past year, mainly because of a huge drop in oil prices.
Core consumer prices were up by 1.9 percent year-over-year in October, unchanged from the previous month.
But economist Ian Shepherdson said the rises in key CPI components like rents and health care would likely push an increase in the PCE where it has a heavier weighting. This month core inflation increased 0.2%, as shelter increased 0.3%. Eating out, or food away from home increased 0.2% for the month and is up 2.9% for the year.
The Fed tracks the personal consumption expenditures price index, excluding food and energy, which is running below the core CPI. Even gasoline prices were up, which was a surprise since the Energy Information Agency had costs declining.
CPI has been driven down this year mostly by the collapse in world oil costs but also the effects of the supermarket price war which have resulted in deflation – a sustained period of falling prices – for shoppers at the checkout.
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Using the old Retail Prices Index (RPI) measure inflation stood at 0.7 percent with the updated RPIJ registering 0.0 percent. The unusual seasonal pattern in clothing prices continued, with September’s weakness being followed by a rebound in October.
