Inflation in September Very Low for Consumer Prices

The Consumer Price Index (CPI) was nearly flat in September. Prices rose by just 0.1% during the month, according to the Bureau of Labor Statistics. Considering that the Federal Reserve would like to be able to use very low inflation as one of the reasons for another round of monetary expansion in November, this report's data could seal the deal.

Let's look at a few charts. First, here's CPI over the trailing 12 months:

cpi cht1 2010-09.png

While inflation appeared to begin rising a bit this summer, you can see that it declined again in September. It's often useful to look at core CPI, which takes out often volatile food and energy prices. Together, they have been responsible for the little inflation consumers have seen over the past few months. In September, core CPI was flat. Here's a chart showing the three-month average of core CPI:

cpi core 2010-09.png

Keep in mind that the vertical axis there only maxes out at 0.3%. So that blip that you see this summer was still really just noise, as core inflation has been virtually nonexistent all year.

It might also help to look at the longer-term trends. Here's another chart from BLS, which shows the 12-month percent change in both total and core CPI:

CPI cht2 2010-09.png

The trends here in CPI and core CPI are pretty clear. The annualized deflation rate has been declining all year. With the measures at or below 1%, the Fed will almost certainly feel comfortable using this very low inflation as one of its justifications for a new quantitative easing plan when it meets in November. Although inflation isn't quite as low on the producer level, the decline in CPI might provide reason enough.