CPI ‘decelerates’ although food and energy costs ‘pressure’ consumers

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The consumer price index gained for the fourth month in a row, but, with smaller increases, suggesting signs of slowing down.

CPI gained 0.2% in September on a seasonally adjusted basis, after a 0.4% increase in August, while the core rate also grew 0.2% in the month after a 0.4% rise a month earlier, the Labor Department said Tuesday.

Economists polled by IFR Markets expected both the headline and core to grow 0.2%.

Year-over-year, CPI is up 1.4%, matching economists' projection.

Core CPI year-over-year is up 1.7%, while economist anticipated an increase of 1.8%.

“Inflation is showing signs of decelerating again after a spike due mostly to food prices earlier in the pandemic,” said Diane Swonk, chief economist for Grant Thornton. “This is what the Federal Reserve feared and one of many reasons officials have continued to advocate for more aid to households, states and firms. Sadly, prices for food at home and at restaurants remain elevated relative to a year ago, which is exacerbating the pain for the millions who have seen unemployment aid lapse.”

According to Roiana Reid, U.S. economist at Berenberg Capital Markets, "the chance of sustained rapid growth in nominal [gross domestic product] in the near term that would generate excess demand and inflation is low given the risks from COVID-19. However, the weaker U.S. dollar will lift prices of nonpetroleum imports and domestic goods in the intermediate run. In the longer run, the path of inflation will depend on fiscal policy, the Fed’s desire for above-2% inflation, and inflation expectations.”

Small business optimism
Small business optimism rose in September, with nine of the 10 index components climbing, while businesses continue to deal with uncertainty, according to the National Federation of Independent Business.

The group's optimism index rose to 104.0 in September from 100.2 in August.

The uncertainty index gained to 92 from 90 in the previous month. The index hit the low for the year (75) in April.

“As parts of the country continue to open, small businesses are seeing some improvements in foot traffic and sales,” according to Bill Dunkelberg, the group’s chief economist. “However, some small businesses are still struggling financially to operate at full capacity while navigating state and local regulations and are uncertain about what will happen in the future.”

NY Fed’s consumer expectations
The Federal Reserve Bank of New York's survey of consumer expectations indicated labor and spending expectations grew, while respondents were “less pessimistic” about finances, according to the Fed's Survey of Consumer Expectations.

Respondents' median inflation expectations held at 3.0% for the one-year outlook in September, but slipped to 2.7% for the three-year outlook.

“Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — increased for the third consecutive month at the three-year horizon, while it retreated to its July 2020 level at the one-year horizon,” the report said. “Both series remain elevated relative to their pre-COVID-19 readings.”

According to the survey, 36.4% see unemployment rising in the next 12 months, down from 39.1% in August.

The survey also found job loss less likely in the next year (6.6% in September after 18.0% in August), but the chances of quitting rose to 20.3% from 19.7% in the prior month.

Finding a job after losing one, respondents say, is getting tougher.

Respondents expect household income to rise 2.3% in the next year, up from 2.2% last month.

Spending is seen rising 3.4% in the next 12 months, the highest reading since May 2019, compared with the 3.0% increase expected in the prior survey.

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Economic indicators Federal Reserve Bank of New York Small business Economy Inflation