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The proverbial other shoe did not fall on the inflation front this morning as some had feared, as the Labor Department reported that the Consumer Price Index, the government's key gauge of retail inflation, rose by the expected 0.3% in September. There had been some understandable angst ahead of this report, as the Labor Department had indicated yesterday that the Producer Price Index, which tracks price changes at the wholesale or manufacturers' level, had soared by 0.8% last month. That was four times the forecasted rise of 0.2%.

Meanwhile, increases in food and energy were the principal causes of the latest CPI rise. Specifically, the gasoline index continued to push ahead, while the indexes for electricity and natural gas gained notably as well. Broad increases in the food indexes also continued in September, with the food at home index jumping by 0.6%. That was the third month in succession that food costs rang up a 0.6% advance. However, that should not come as a shock to anyone who shops in supermarkets or at grocery stores.

Encouragingly, though, the index for all items less food and energy increased by just 0.1% last month. That so-called core rate of price inflation is closely tracked by the Federal Reserve as a guide to the underlying rate of inflation. The low 0.1% advance in that barometer should continue to give the central bank some breathing room as it looks for ways to stimulate a sluggish economy.

As for the overall outlook for inflation, one of the Fed Board governors, within the past day, indicated that inflation while not a problem as yet, would become a headache later on in view of the back-to-back quantitative easing undertakings initiated over the past two years. That is a sobering assessment and could well give the Fed some reasonable pause to rethink its long-range monetary policies--or at least one would hope it would give the central bank such pause--if this becomes the consensus view within the bank.

Finally, the 12-month change in all items of inflation at the consumer level in September was 3.9%. That is one-tenth of a percentage point more than the August annual rate of a 3.8% increase. overall. Still, all things considered, the report made for some decent reading, and counters, to a degree, the disappointment stemming from yesterday's higher-than-expected PPI change.

 

At the time of this article's writing, the author did not have positions in any of the companies mentioned.