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CPI: Core Pressures Remain

October 13, 2021
Bottom Line:  Core CPI in September was in line with expectations as several pandemic-related categories saw lower prices, but Owner's Equivalent Rent (OER) accelerated. OER, a key measure of housing costs and nearly a third of core CPI, rose 0.43% and was up 3.96% annualized over the three months ended in September, accelerating from the 3.69% six-month pace and 2.9% 12-month pace.  Medical care services, just less than 10% of core, slipped after several strong months and were still accelerating on a trend basis.  Key pandemic-related categories were mixed to lower with new car prices higher but used cars lower,  Clothing prices were also lower, as were transportation prices, led lower by airfares. 
Overall, core price pressures remain.  While the pandemic-related categories and medicare care services helped keep the core reading in line with expectations, the trend rates for the most important categories continued to accelerate.  Moreover, based on historical time lags, most of the impact from higher single-family home prices won't be felt until early 2022 CPI readings. Core CPI components look likely to run above the Fed's 2% target for several quarters.

ROSE by 0.41% in September, compared with market expectations for an increase of 0.30%.
  • Food prices increased by 0.93% while energy prices rose by 1.3%.  Prices for gasoline rose by 1.2% while prices for fuel oil increased by 3.1%, prices for electricity climbed by 0.8%, and prices for natural gas rose by 2.7%.  
  • Energy prices are now 24.8% ABOVE their year-ago level.  
Overall consumer prices are now 5.4% ABOVE their year-ago level; in September 2020, consumer prices were 1.4% ABOVE their year-ago level.
The Core CPI ROSE by 0.24%, compared with market expectations for an increase of 0.20%.  
  • Prices for commodities excluding food and energy commodities rose by 0.2%.
  • Gains in new vehicles (+1.3%), tobacco (+0.7%),  were offset by declines in apparel (-1.1%), used cars & trucks (-0.7%).
  • Prices for services excluding energy services rose 0.2% with a slight increase in owner's equivalent rent (+0.4%).
Core consumer prices are now 4.0% ABOVE their year-ago level; in September 2020, consumer prices were 1.7% ABOVE their year-ago level.