CPI Was Flat in October as the Fight Against Inflation Potentially Turns a Corner

November 14, 2023

Consumers got a reprieve from rising prices in October, as inflation was flat from the month prior, with some economists calling the month a turning point for the fight against inflation.

The consumer price index (CPI), which tracks the prices for a broad basket of commonly purchased goods and services, was unchanged from the month before, according to the Labor Department. That is a marked slowdown from September’s 0.4% monthly gain. On an annual basis, CPI was up 3.2% in October, down from its recent peak of 9.1% in June 2022. Economists surveyed by Dow Jones had been anticipating a monthly increase of 0.1% and an annual increase of 3.3%.

The so-called “core” CPI, which excludes volatile components like food and energy, and is considered a more accurate indicator of inflation’s trajectory, increased 0.2% and 4% on a monthly and annual basis, respectively. The annual gain was the lowest in two years. Core inflation for the five months ended in October was at an annual rate of 2.8%, down from 5.1% during the first five months of the year.

The flat reading for monthly reading was driven primarily by a 2.5% decrease in energy prices for the month, which more than offset an increase of 0.3% for food costs, the lowest monthly gain since July 2022. Vehicle costs, which had been a key inflation component during the initial spike in 2021, fell on the month. New vehicle prices declined 0.1%, while used vehicle prices were off 0.8% and were down 7.1% from a year ago.

The most notable portion of the CPI report, however, was the shelter cost component of the index, which accounts for about two-fifths of the total index. Last month, shelter costs were up 6.7% from a year earlier, versus a recent peak of 8.2% in March. CPI shelter costs are mostly driven by rent prices because the Labor Department uses rent prices to calculate “owners’ equivalent rent,” which is an estimate of what people would need to pay if they rented homes equivalent to ones they own. CPI’s measure of rents reflects not just rents on newly signed leases, but leases that were signed a while ago. This means it takes time for cooling rent inflation to show up.  More real-time data from rental companies like Zillow have shown rapidly declining rents. Zillow’s index of national rents was up 3.2% in September as compared to a year prior. That is down substantially from a recent peak of 16.1% in February of last year. As the CPI continues to catch up to more recent shelter cost trends, inflationary pressure may remain subdued, clearing the way for the Federal Reserve to more definitively declare its work to combat inflation is done,

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