–Oct CPI +0.2%; Core Unchanged for Third Month in a Row

WASHINGTON (MNI) – The third month of a motionless CPI core rate
has decelerated the measure to a record slow rate of annual increase,
part of a picture of “no deflation but no inflation either,” a Bureau of
Labor Statistics analyst said Wednesday.

The BLS Wednesday morning reported the Consumer Price Index rose a
less-than-expected 0.2% in October — despite a 4.6% jump in gasoline
prices — and that the core rate is running at only an annualized 0.5%
increase, while the 12-month core rate is at only 0.6%, both record lows
since the inauguration of the series in 1957. At this time last year,
the core rate was running at 2.0%.

“There’s no deflation but no inflation either,” senior BLS
analyst Ken Stewart told Market News International just prior to the
public release of the numbers.

October saw the heavily weighted shelter index rise just 0.1% after
two months of zeroes, while the two measures of rents also rose 0.1%.
Rents have not risen more than 0.1% since April 2009, Stewart said.
Rents alone make up more than 30% of the entire CPI and have been a
major factor in its moderation.

Another major category, food prices which contribute nearly 15% to
the CPI, also rose just 0.1% in October after a 0.3% bump up in
September. There was little evidence in the CPI of the commodities
price hikes, which Stewart said offer only “some correlation, not
perfect and uneven” in their influence on the report.

In Tuesday’s Producer Price Index report in contrast, commodities
pressured raw materials and intermediate goods prices but even there,
did not yet appear to be passed up the pipeline to finished goods.

One of the most striking outright declines in the latest CPI was
that for used cars, which up until September had continued to show the
inventory-depleting aftermath of the “Cash for Clunkers” program that
took so many to the junkyard.

In the 12 months through August, used car prices had gone up
another 17.0%, Stewart said, and then “steep declines” of 0.7% in
September and 0.9% in the latest report.

New vehicles prices dropped as well in October, down 0.2%.

The CPI methodology for incorporating new car prices spreads them
over many months in contrast to the Producer Price Index, which adds
them all in the October report. Smaller-than-typical increases
pulled the PPI’s core rate down a surprising 0.6% in Tuesday’s report,
the biggest decline since a matching drop in July 2006 and a drop not
exceeded since 1993.

The annual CPI inflation rate through October is just 1.2% and for
this year through October, just 0.9% annualized and adjusted. Last year
the overall “all items” rate was 2.0%.

Even cigarette prices, “one of those things that tends to go up,”
Stewart said, in October turned around and fell 0.3%. For 12 months,
that category is up 6.8%.

The BLS also announced Wednesday that it is renaming some CPI
categories beginning in January, “to make them more precise,” Stewart
said. So what is now “canned fish food” will become “shelf stable
seafood” to reflect that it can now be purchased in pouches.

Expectations in a Market News International survey had centered on
an increase of 0.3% in the October CPI with a 0.1% rise in the core
rate.

The BLS Wednesday also provided reporters its study of the impact
of the European debt crisis on U.S. import prices, showing the 18%
depreciation of the euro from the onset of the Greece debt crisis in
November 2009 through this June flattened import prices from the EU only
slightly. In its examination of why the effect wasn’t larger, the BLS
said the impact was lessened by the “perceived duration” of the exchange
rate shift. European companies passed through only “a small percentage
of the currency change” in order to preserve market share, believing —
correctly — the shift was not durable.

If European producers believed the currency fluctuation would
persist, they would have passed through more of it, but in this case,
they didn’t, the BLS concluded.

** Market News International Washington Bureau: 202-371-2121 **

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