Consumer Price Index Price Increases Remain Low in October 2010

Consumer price increases remain subdued in October 2010 based on data from the BLS.   The headlines:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment.

As has frequently been the case in recent months, an increase in the energy index was the major factor in the all items seasonally adjusted increase. The gasoline index rose for the fourth month in a row and accounted for almost 90 percent of the all items increase; the household energy index rose as well. The food index rose slightly in October with the food at home index unchanged.

The index for all items less food and energy was unchanged in October, the third month in a row with no change. The indexes for shelter and medical care rose, but these increases were offset by declines in an array of indexes including new vehicles, used cars and trucks, apparel, recreation, and tobacco.

Over the last 12 months, the index for all items less food and energy has risen 0.6 percent, the smallest 12-month increase in the history of the index, which dates to 1957. The energy index has risen 5.9 percent over that span with the gasoline index up 9.5 percent. The food index has risen 1.4 percent, with both the food at home index and food away from home index rising the same 1.4 percent.

The CPI data is difficult to analyze as your immediate reaction is that the overall price increases YoY of 1.2% seem awfully low.  One reason is the average person envisioned does not exist.  The breakdown of the spending pattern of the non-existent person:  Food (15%), Housing (42%), Clothing (4%), Transport (17%), Medical (6%), Pocket Money (6%), Education (6%), and Miscellaneous (4%).

A commuter with no kids has a completely different spending dynamic, as well as students, those retired, homeowner with no mortgage, and the self employed. Therefore, I like to concentrate on the areas the CPI shows has the highest price changes.

It is clear fuel prices rose in October (but now going down as we speak).   Based on my anecdotal view – food prices seem to be rising in front of my eyes in all categories.

The CPI is an imperfect price index, and bound to be an inaccurate cost of living indicator for many people.

If you ignore a couple of essential things, like food and energy, what is left is the so-called core inflation.  That is low by historical standards as evidenced by the following graph from Business Insider Clusterstock:

Core inflation is at an all-time low, going back over 50 years.