The Bureau of Labor Statistics said that consumer prices declined 0.1 percent in October, the first decrease in six months. The decrease was almost entirely attributable to lower gasoline prices, which were off 2.9 percent for the month. Indeed, the price of West Texas intermediate crude fell from $102.36 per barrel on September 30 to $96.29 a barrel on October 31. (It has fallen further since then, closing at $93.34 per barrel yesterday.) Total energy costs were down 1.7 percent in October, with electricity prices up 0.1 percent and piped-in natural gas energy prices down 1.0 percent.
Food prices edged higher by 0.1 percent in October after being unchanged in September. Food costs have risen very modestly over the past 12 months, up just 1.3 percent year-over-year. In October, the increased cost for meats, poultry, fish and eggs (up 0.6 percent) was mostly offset by lower prices for cereals and baking products (down 0.4 percent) and dairy products (down 0.2 percent).
Outside of food and energy, components with the greatest year-over-year price increases have included alcoholic beverages, education and communication services, medical care services, recreation services, rent for one’s primary residence, tobacco and smoking products, and transportation services.
The bottom line, though, is that overall consumer prices have risen just 0.9 percent over the past 12 months, decelerating from 2.0 percent in July and 1.2 percent in September. Much of this easing has come from reduced energy costs, with the energy index down 1.1 percent from July to October. Excluding food and energy, core inflation is currently 1.7 percent, a pace that was unchanged from the month before.
This suggests that inflation remains quite modest, with core inflation below the Federal Reserve’s stated target of 2 percent. Indeed, core inflation has not exceeded 2 percent since July 2012. This should allow the Federal Reserve to continue to pursue “highly accommodative” policies, even as it seeks to “taper” (or slow) its asset purchases at future Federal Open Market Committee (FOMC) meetings. In his speech at last night’s National Economists Club, Fed Chairman Ben Bernanke reiterated the FOMC’s commitment to keeping short-term interest rates essentially zero for the foreseeable future, perhaps beyond when the unemployment rate hits 6.5 percent.
Chad Moutray is the chief economist, National Association of Manufacturers.