Image Source: Pixabay

Today’s CPI report for September came in almost exactly as I suggested it would in my preview yesterday. To wit:

• Headline CPI continued increased 0.2% for the month, and decelerated to 2.4% YoY, its best showing since February of 2021. 
• On a 3 month annualized basis, prices are increasing 2.1%. On a 6 month annualized basis, they are only increasing 1.6%. 
• energy inflation remains non-existent, with another decline of -1.9% for the month, resulting in a decline of -6.9% YoY.
• excluding shelter, prices were also up 0.2%, and were once again up 1.1% YoY, the 17th month in a row the YoY change has been below 2.5%.
• shelter inflation decelerated sharply for the month, up only 0.2%, tied for the least increase in 3 years, and up 4.8% YoY, the lowest YoY increase since February 2022.
• but core inflation, which includes shelter but excludes gas and food, remained elevated, up 0.3% for the months and 3.3% YoY, an increase of 0.1%.

Let’s break this down graphically to better show the trends.

Here are headline (blue), core (red), and ex-shelter (gold) inflation YoY:

Yet again, the only reason for the Fed not to treat inflation as well within its target zone is shelter.

The good news on shelter inflation this month puts it back on the deceleration track (blue in the graph below), and is in line with what we could expect vs. the FHFA Index YoY (red):

Now let’s take a look at the former and remaining problem children, plus why core inflation had a bump upward this month. 

The former problem child of new (dark blue) vehicle prices declined -0.1% this month and are down -1.3% YoY. Used (light blue) vehicle prices rose 0.3% and are down   -7.5% YoY (shown as the change since right before the pandemic, below). I also show average hourly nonsupervisory wages (red) for comparison, showing that wage growth has actually outpaced vehicle prices (meaning the remaining problem there is interest rates for financing):

Note again that used vehicle prices have given back over 50% of their post-pandemic gain.

Next, here’s a look at the remaining problem children. Electricity (gold) gained back the 0.7% it declined one month ago, but decelerated to being up 3.7% YoY, a six month low. Food away from home (blue) increased 0.3% again, and is up 3.9% YoY. Finally, transportation services including vehicle maintenance, repair, and insurance (red) increased 1.4%, the most in six months, and is up 8.7% YoY, an acceleration of 0.8% from last month:

This is the first month that both electricity and food away from home have been below 4% inflation YoY post-pandemic. As I have previously pointed out, transportation services inflation is a typical delayed reaction to the previous big increase in vehicle prices.

If several of the old problem children are fading, a new one - medical care services - appeared this month, increasing 0.7%, tied for the biggest increase in two years, causing the YoY% gain to increase to 3.6%, the highest in 21 months:

Finally, the CPI release allows me to update the very important metric of real aggregate nonsupervisory payrolls, which as anticipated increased 0.2% and once again made a new record high, up 8.2% since just before the pandemic:

To reiterate, there has *never* been a recession without real aggregate payrolls turning down first.

In conclusion, this was in almost all respects a good inflation report, with headline inflation closing in on the Fed’s 2% target, and the shelter component resuming its deceleration. The only fly in the ointment was the persistent 3%+ level of core inflation, which was hurt by the increase in medical care expenses.

More By This Author: