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Core
Inflation Remains
Under Control
Despite Spikes
in Energy Prices
Article
Date - Nov.29.2005 |
|
The
hurricane-related
surge in energy
prices drove
both the producer
price index
(PPI) and the
consumer price
index (CPI)
out of sight
in September,
while the core
components of
both measures
(excluding prices
of food and
energy) remained
in the historically
low ranges prevailing
since early
this year.
A slowdown in
energy price
inflation at
the wholesale
level brought
down overall
PPI inflation
to some degree
in October,
and an outright
decline in energy
prices at the
retail level
reduced overall
CPI inflation
considerably.
The news on
core inflation
was even better,
as the core
PPI for finished
goods slowed
to a 1.9% year-over-year
pace and the
core CPI posted
a modest 2.1%
increase. The
technically
superior chain-core
CPI (allowing
for substitution
among goods
and services
in the market
basket) showed
a year-over-year
rise of only
1.7% in October,
the slowest
pace in a year.
These performances
hardly mean
that core inflation
is a non-issue,
and the Fed
has been stressing
inevitable pass-through
of historically
high energy
prices into
the core down
the line. The
stunning reversal
of the hurricane-induced
spike in energy
prices has diffused
that issue to
some degree,
although some
increase in
core inflation
still seems
inevitable in
both 2006 and
2007 as energy
prices remain
at high levels
and labor markets
tighten further. |
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