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Inflation took a breather in September, coming in unchanged from August. Analysts had expected a 0.1% increase. The core rate of inflation rose 0.1% compared to the 0.2% increase that analysts were predicting. However, y-o-y the CPI was up 4.9% and the core rate was up 2.5%.

Energy costs fell 1.9% in September as gasoline prices edged down 0.6% and fuel oil and natural gas prices showed substantial declines.

Food prices continued to increase at a rapid pace, up 0.6% for the month and showing an 8.5% annual rate of increase over the past three months. Dairy product prices and fruit and vegetable prices showed a small decline but that was more than offset by increases of 1% or more for meats, cereal products, sweets and fats and oils. The cost of restaurant meals increased 0.5%.

The core rate of inflation rose a modest 0.1% in September, its smallest increase since April. Auto and truck prices fell almost a percent during the month, and airline fares showed a small decline as fuel prices began to soften. Owner’s equivalent rent rose 0.2%, actual rents of residences rose 0.3%, and the cost of lodging away from home rose 0.9%. Medical care costs continued to rise, up 0.3%, reflecting a 0.6% increase in the cost of hospital care. Tuition and child care costs rose 0.4%.

Aside from food and energy costs, inflationary pressures have been centered in the services area. Core services have risen 3.2% over the past 12-months while core commodities prices have risen 0.5%.

* September CPI is expected to fall 0.1% following a 0.1% decline in August

* September Core CPI is expected to increase 0.3% following a 0.2% increase in August

Lower energy prices over the period are once again expected to keep headline consumer prices in check. Energy prices, which makes up 9.7% of headline CPI, fell 3.1% in August after a 4% increase in July; and Gasoline prices, which make up 5.2% of headline CPI fell 4.2% in August after a 4.1% increase in July. Petroleum import prices fell 9% in September, while Natural Gas import prices fell 15.6%. Energy prices respond rather quickly to changes in futures markets, where as other consumer products are usually more infrequent in adjusting prices downward relative to lower input costs. Potentially lower food prices also pose downside risks to September CPI as the 9.6% drop in Ag-Export prices in August has yet to be reflected in recent CPI data.

Core prices are expected to remain subdued, though pipeline inflation pressure via price offsets from previous increases threatens upside risks to Core estimate. This was the case in the September PPI report, which revealed a higher than expected Core reading, despite the reported drop in headline prices. Shelter prices are also likely to remain subdued after gaining 0.1% in August.

• September CPI is expected to fall 0.1% following a 0.1% decline in August

• September Core CPI is expected to increase 0.3% following a 0.2% increase in August

Lower energy prices over the period are once again expected to keep headline consumer prices in check. Energy prices, which makes up 9.7% of headline CPI, fell 3.1% in August after a 4% increase in July; and Gasoline prices, which make up 5.2% of headline CPI fell 4.2% in August after a 4.1% increase in July. Petroleum import prices fell 9% in September, while Natural Gas import prices fell 15.6%. Energy prices respond rather quickly to changes in futures markets, where as other consumer products are usually more infrequent in ajdusting prices downard relative to lower input costs. Potentially lower food prices also pose downside risks to September CPI as the 9.6% drop in Ag-Export prices in August has yet to be reflected in recent CPI data.

Core prices are expected to remain subdued, though pipeline inflation pressure via price offsets from previous increases thretens upside risks to Core estimate. This was the case in the September PPI report, which revealed a higher than expected Core reading, despite the reported drop in headline prices. Shelter prices are also likely to remain subdued after gaining 0.1% in August.

The August CPI fell 0.1% as falling energy prices more than offset rising prices for food and other goods and services. That was in line with analysts’ expectations and the first decline in the index since October 2006. Excluding food and energy prices, the CPI rose 0.2%, also in line with analysts’ expectations.

Energy prices fell 3.1% in August , the largest decline since the 7.1% decline in October 2006. Most energy commodities prices fell with gasoline down 4%, fuel oil down almost 10% and natural gas prices down almost 6%. Electricity prices continued to rise, up 1.2% during the month.

The core CPI rose 0.2% during the month. Rental costs increased 0.3% but the heavily weighted “owners equivalent rent” rose only a modest 0.1%. Other services costs were up with medical care services showing a 0.3% increase and tuition and childcare costs up 0.5%. Public transportation prices continued to increase as airline fares rose again. Core commodities rose only 0.1%, following a 0.5% increase in July. Falling auto and truck prices helped to offset increases in the prices of apparel and a 2.6% increase in the cost of books and school supplies.

Food prices rose 0.6%, its largest gain since May, as price increases for meat, dairy and fruits and vegetable prices offset the small easing in the prices of cereal and bakery products. Prices for food away from home continued to increase, up 0.3%, despite the weakening economy.

On a y-o-y basis, the CPI rose 5.4% and the core rate of inflation was up 2.5% from year earlier levels. Today’s improved inflation numbers will be a welcome sign for the Fed but will not be the deciding factor in the FOMC’s decision-making.

• August Headline CPI (m/m) is expected to fall 0.1% following a 0.8% increase in July
• Core CPI (m/m) is expected at 0.2% following a 0.3% increase in July
• Headline CPI (Y/Y) is expected at 5.5% vs. 5.6% prior
• Core CPI (Y/Y) is expected at 2.6% vs. 2.5% prior

The July CPI rose 0.8%, twice the increase that most analysts had expected. The core rate of inflation was 0.3% in July, slightly above the 0.2% increase that was anticipated. Y-on-y the all items index is up 5.6%, the largest 12-month increase since January 1991. Y-on-y the core index increased 2.5%.

Energy and food prices continued to drive the headline inflation number higher. Energy prices rose 4% in July on a 4.1% increase in gasoline prices and a 7.4% increase in natural gas prices. Food prices rose 0.9% overall but food consumed at home rose 1.2% as meat, dairy, cereal prices and fruit and vegetable prices all rose over 1%.

The core rate of inflation rose 0.3% for the second month in a row. Core commodity prices rose 0.5%, its largest gain since 1999, as apparel prices rose 1.2%, new vehicle prices rose 0.2%, educational books and supplies rose 0.8%, and tobacco products rose 1.2%. Core services rose 0.3% as rent increased 0.3% and lodging away from home rose 0.7% but the heavily weighted owners equivalent rent rose only 0.1% in July after a 0.3% increase in June. The cost of health care services rose 0.2% in July, its smallest gain in 3 months but tuition increases were up 0.4% and public transportation costs continued to rise on higher fuel prices, up 1.1% for the month. Airline fares were the largest contributor to that increase, up 1.3% in July and up 20% over the past year.

There continues to be a dichotomy between goods and services prices. Despite a 0.5% increase this month, core commodities prices are up only 0.6% for the year while core services prices have increased 3.3%. If today’s increase in the core goods prices are an indicator of a feed through of higher import prices or the costs of materials, those could continue to put upward pressure on the core rate of inflation. However, tobacco price increases are unlikely to continue at the current pace and with a weak economy, apparel and auto price increases are likely to be reversed.

July Headline CPI is expected to increase 0.4% following a 1.1% June increase. Core CPI is expected to increase 0.2% after a 0.3% gain prior. Y-o-Y Headline CPI is expected to grow marginally to 5.1% and Core CPI is expected to be unchanged at 2.4%.

Energy prices are once again expected to be the main contributing factor to the expected increase, though this impact will be considerably less compared to recent data as energy prices pulled back near the end of the month. Consumer energy prices grew 6.6% in June following a 4.4% increase in May. Gasoline prices grew 10.1% after a 5.7% increase in May. Petroleum import prices grew 4% in July and Natural Gas import prices rose 5.8%.

Food prices should have a limited impact on July CPI but there is upside risk from the July Ag-Price Index which increased 1.9%, and the July Ag- Export Price Index, which rose 6.7%. Food prices, representing roughly 15% of CPI, grew 0.7% in June following a 0.3% rise in May and a 0.9% increase in April.

July Core CPI is expected to remain muted with shelter, medical care and vehicle prices all expected to post marginal increases over the period. There is the threat of pipeline inflation sneaking its way into core prices as firms must eventually compensate for higher energy prices.

The July CPI data are likely to reflect a near-term peak in consumer prices, as the recent sell-off in energies should help drag y-o-y inflation figures significantly lower going forward.

July Headline CPI is expected to increase 0.4% following a 1.1% June increase. Core CPI is expected to increase 0.2% after a 0.3% gain prior. Y-o-Y Headline CPI is expected to grow marginally to 5.1% and Core CPI is expected to be unchanged at 2.4%.

Energy prices are once again expected to be the main contributing factor to the expected increase, though this impact will be considerably less compared to recent data as energy prices pulled back near the end of the month. Consumer energy prices grew 6.6% in June following a 4.4% increase in May. Gasoline prices grew 10.1% after a 5.7% increase in May. Petroleum import prices grew 4% in July and Natural Gas import prices rose 5.8%.

Food prices should have a limited impact on July CPI but there is upside risk from the July Ag-Price Index which increased 1.9%, and the July Ag- Export Price Index, which rose 6.7%. Food prices, representing roughly 15% of CPI, grew 0.7% in June following a 0.3% rise in May and a 0.9% increase in April.

July Core CPI is expected to remain muted with shelter, medical care and vehicle prices all expected to post marginal increases over the period. There is the threat of pipeline inflation sneaking its way into core prices as firms must eventually compensate for higher energy prices.

The July CPI data are likely to reflect a near-term peak in consumer prices, as the recent sell-off in energies should help drag y-o-y inflation figures significantly lower going forward.

Annual CPI inflation: 4.4

m/o/m  0.0

Core Anuual CPI 1.9

Core m/o/m CPI -0.2

RPI: 5.0

m/o/m -0.1

RPIX  5.3