Even With Consumer Prices Flat, Underlying Inflation Pressure Picks Up

Underlying inflation pressures picked up in October, despite the Labor Department’s so-called core Consumer Price Index, which excludes food and energy, rising 0.2 percent.

Falling gasoline prices kept overall U.S. consumer prices in check, though the CPI saw its largest increase in five months. Reportedly, it barely tickup up 0.1 percent in September.

In the 12 months through October, however, the core CPI rose 1.8 percent, slightly higher than the 1.7 percent it increased in September. However, falling gasoline prices, which largely offset rising shelter and increasing medical costs due to the ACA, left the overall CPI unchanged last month after a 0.1 percent gain in September.

“The decline in energy prices simply hasn’t yet bled through to the core. Inflation, while below the Fed’s target, is certainly not “too low,” today’s flat headline reading furthers the debate surrounding potential Fed activity,” said Dan Greenhaus, chief strategist at BTIG in New York.

The U.S. central bank has kept its short-term interest rate near zero since December 2008. Most economists expect the first interest rate increase sometime in the mid-2015.

In the month of October, energy prices fell for a fourth straight month, fueled by a 3.0 percent decline in gasoline prices after falling another 1.0 percent in September. Food prices, continuing their usual trend, edged up 0.1 percent after gaining 0.3 percent in September.

Within the core CPI, shelter costs increased 0.2 percent last month after increasing 0.3 percent in September. There were increases in airline fares and new motor vehicle prices as well as prices for prescription medication and hospital fees.

Tobacco prices also rose last month as did household furnishings, which posted their largest gain since November 2012.