The Consumer Price Index continued to fall in September, consistent with our analysis last month. The latest AIER Inflationary Pressures Scorecard shows a further decline for the months ahead. Overall, 14 indicators out of 23 tracked in the Scorecard point to falling inflationary pressure, up from nine last month (Table 1).
On the demand side, retail sales continued to fall, suggesting weakening consumer demand and downward pressure on prices. On the supply side, both industrial production and retail inventory/sale ratios advanced. More supply usually leads to lower prices.
On the money/credit front, even though the money supply grew faster, money velocity slowed. Money velocity is a measure of how frequently money gets spent to buy goods and services. Less frequent money exchange means fewer transactions, which puts downward pressure on prices.
With regard to costs and productivity, producers reported falling costs except for services. Lower producer prices usually mean lower consumer prices down the road. On balance, productivity and labor costs point to declining inflationary pressure.
Consumer Price Index Analysis
The Consumer Price Index dropped 0.2 percent in September from August, the second consecutive monthly fall this year. The decline was mainly caused by energy prices, which fell 4.7 percent from last month and 23.9 percent from three months earlier (Table 2). The September decline was the second largest monthly drop since energy prices started plummeting in the summer of 2014 (the largest was a 9.7 percent decline in January 2015).
While energy prices fell steeply, food prices rose 0.4 percent, the largest monthly jump since March 2014. Food was 3.2 percent more expensive than three months ago and 1.6 percent higher than its year-ago level. Food price increases have outpaced the overall price index over the past 20 years (Table 2).
The core CPI, which excludes volatile food and energy prices, making it more stable than the overall CPI, advanced 0.2 percent in September from last month, 1.7 percent from three months ago and 1.9 percent from a year earlier. After falling 0.11 percent in January 2010, the core measure has grown every month since, rising at an average pace of 0.14 percent.
Looking into the core CPI, even though all the core goods tracked in Table 2 dropped in price for the month, overall core goods posted no change. The broader list of CPI components showed several rising prices, including household furnishings and supplies, recreation commodities, and educational books and supplies.
Core services rose 0.3 percent in September from August, contributing to the 0.2 percent rise in the core CPI. Viewed long term, core services posted solid growth in a sluggish inflation environment. The core service price index climbed 2.7 percent above its year-ago level, gaining at an annualized 2.4 pace in the past five years and 2.8 percent over the past 20 years. Medical-care services and education are among the fastest growing CPI components.
Everyday Price Index
AIER’s Everyday Price Index declined 1 percent in September. Including apparel, the EPI slipped 0.5 percent for the month, a slightly larger drop than measured by the Consumer Price Index.
Over the past 12 months the EPI has fallen 3.6 percent while the CPI has shown no change. Energy accounts for the difference, as it plays a much greater role in the EPI than in the CPI.
Gasoline prices dropped 10.1 percent in September and have fallen 13 percent since May. That month saw a short-lived gain, but over the past year gas prices have fallen 29.6 percent. On the home front, utilities slid 1 percent in September and fell 12.1 percent over the past year. Lower prices for gas and utilities leave more money available for holiday shopping.
Food prices rose 0.4 percent in September with food-at-home prices climbing 0.3 percent and food-away-from-home gaining 0.5 percent. Food-at-home prices were led higher by a 1.4 percent increase in fresh fruits and vegetables. Food-away prices at limited-service establishments, such as Panera Bread or McDonald’s, climbed 0.4 percent in September. Over the past 12 months, prices at food-away-from-home establishments have risen 2.9 percent due to strong demand.