Tame September CPI? How Tame?

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CPI month-over-month data from the BLS, chart by Mish.

Here’s a headline that caught my eye: S&P 500 hits all-time as tame inflation gives ’all clear’ for October rate cut

The market is giddy alright, but how tame is tame? Let’s discuss some charts.

The CPI Rose 0.3 Percent in September

The BLS reports the CPI Rose 0.3 Percent in September, a bit lower than the Bloomberg Econoday consensus of 0.4 percent.

The BLS reports to a single decimal place. I calculate two decimal places.

CPI Month-Over-Month Percent Details

• All Items: 0.31
• All Items Except food and Energy: 0.23
• Food and Beverage: 0.25
• Food Away from Home: 0.14
• Food at Home: 0.32
• Shelter: 0.21
• Owners’ Equivalent Rent (OER): 0.13
• Rent of Primary Residence: 0.20
• Medical Care Services: 0.28
• Medical Care Commodities: -0.06
• Energy: 1.51
• Gasoline: 4.06

Delayed Report

This report is very late. But it’s accurate to the normal extent of BLS accuracy (which isn’t saying much) because the data was already collected before the government shutdown began.

The October report due in November will be certified garbage.

What’s Going On?

Trump Recalls BLS Workers to Produce CPI Report

CPI data for September is needed for annual Social Security cost of living calculations (COLAs).

Trump was forced to recall enough BLS workers to compile the collected data.

I discussed this on October 10, in Trump Recalls BLS Workers to Produce CPI Report Because SS Payments Need It

So, there is no conspiracy here, just normal BLS reporting.

CPI and PCE Year-Over-Year Percent Change

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CPI and PCE year-over-year data from the BLS, chart by Mish.

PCE stands for the Personal Consumption Expenditures price index. It is the Fed’s preferred measure of inflation.

PCE data for September is postponed due to the shutdown.

CPI and PCE Year-Over-Year Details

• CPI: 3.0 percent
• Core CPI: 3.0 percent
• PCE (August): 2.9 percent
• Core PEC (August): 2.9 percent

CPI Year-Over-Year Percent Change

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CPI year-over-year details from the BLS, chart by Mish.

CPI Year-Over-Year Details

• CPI: 3.0 percent
• Core CPI: 3.0 percent
• Food and Beverages: 3.0 percent
• Owners’ Equivalent Rent (OER): 3.8 percent
• Rent of Primary Residence: 3.4 percent

Is any of that tame? What about the current month?

Annualized CPI at Current Monthly Rate

CPI current month annualized, chart by Mish.

CPI Annualized Current Month Details

• CPI: 3.8 percent
• Core CPI: 2.8 percent
• Food and Beverage 3.0 percent
• Shelter: 2.5 percent

Is the CPI at 3.8 percent tame? How about core CPI at 2.8 percent with targets of 2.0 percent.

What’s the Real Problem?

That question gets to the heart of the matter. And it is much worse than my charts show.

While everyone rails against BLS data collection methods and procedures (with good cause), that is not the fundamental problem.

Rather, the fundamental problem is the makeup of the CPI and PCE itself.

The CPI consists of items directly paid for by consumers. The PCE contains items indirectly paid for by consumers, notable Medicare and corporate health insurance.

They are both flawed because neither includes home owners’ insurance or property taxes.

And the BLS percentage weights for food are nonsense.

Nonsensical BLS Chart

The BLS says the cost of homeowners insurance index has risen form 151 to 165 since January of 2020.

That’s an increase of 9.3 percent. But all the BLS counts is insurance for contents, not fire, flood, or hurricane damage to the building.

Let’s now discuss food.

BLS Percentage Weights in December 2024

• Food at Home: 8.04
• Food Away from Home: 5.64

USDA Actual Spending Weights 

• Food at Home: 5.68
• Food Away from Home: 8.01

Note the BLS food weights for home vs away are reversed from where people actually spend their money.

For more details, please consider Where Do You Spend Money on Food? How Screwed Up Are the BLS Weights?

Does the BLS match your budget?

The Key Mistake

Finally, please consider Is Homeowners Insurance Understated in the CPI? Shop Around! This is the key BLS mistake.

Our Insurance went up by $2,000. Then another $2,000. Here’s our story.

But look on the bright side, Trump Says There Is ‘Virtually No Inflation.’

Homeowners’ insurance, and property taxes, and food are three reasons the CPI is garbage.

Better collection mechanisms will not and cannot fix this fundamental problem.

Worse yet, the Fed, Trump, and the overwhelming majority of economists do no even understand the problem.

But hooray! The CPI was tame. I made a note.

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