October Consumer Price Index

• The October Consumer Price Index came in at 0.200% MoM  vs. 0.2% consensus (0.122% YoY)
• Core CPI on-consensus at 0.202% MoM (1.915% YoY)
• Owners’ Equivalent Rent (rental inflation) reached another new high at 3.090% YoY (last seen in mid 2007)

• Medical Care rose a touch to 2.983% YoY vs. 2.454% in September
• Apparel (sensitive to import price from China) declined further to -1.906% YoY vs. -1.369% prior
• New Vehicles (sensitive to import prices from Japan) came in at 0.143% YoY vs. 0.473% prior
• Transportation rose a touch at-7.886% YoY vs. -8.684% prior

In summary, the divergence between strong core services inflation and energy-led weakness in headline Consumer Price Index persisted into the October reading.  Rental inflation has risen to 2007 levels, and Medical Care inflation ticked up a touch (while still being depressed by ACA-related impacts).  Given that energy (WTI crude futures) is hovering around recent lows, it is encouraging to see core services inflation rising despite pass-through impacts from weaker goods and energy prices.

Federal Reserve Policy Implications

Following the above-consensus October Payrolls (Nov 6th), one can argue that the October CPI would be a potential hurdle for a December rate hike.  The latest reading suggest FED officials will breathe a sight of relief on inflation (especially following the on-consensus 3Q ECI and the October average hourly earnings).  There are few remaining (tier 1) data releases between now and the December FOMC: Payrolls on Dec 4th will be highly watched as usual, and secondary data such as GDP, ISM, Durables, etc, will need to be terrible to move the needle.

Remaining data points are dwindling before the next FOMC meeting, and the latest inflation data will support the view of December rates liftoff.

Anecdotal evidence of rental inflation

Just to add some anecdotal evidence of rental inflation, below is my lease renewal form – 12 month lease going from $1,979.00 to $2,327.61, a 17.6% YoY increase