US CPI rises on core strength and as energy stops being a drag

CPI rose in October after two consecutive monthly falls, as energy prices bounced back. Headline CPI increased 0.2% m/m in seasonally adjusted terms (forecast 0.3%, consensus 0.2%). Core CPI also rose 0.2% m/m (consensus: 0.2%). The NSA CPI index came in at 237.838, lower than (238.0), but above consensus (237.754) expectations. Energy prices rose 0.3% m/m and food prices were up a modest 0.1% m/m. On a y/y basis, total CPI increased 0.2% and core CPI rose 1.9%.

Core services prices continued to increase at a solid pace, 0.3% m/m. Shelter, including rent and OER, were the main drivers of core services strength. But medical care and transportation services increased as well, pointing to broadly based strength in core services inflation. Core goods prices declined modestly on the month. Major categories such as apparel, new and used vehicles and tobacco all dragged on core goods inflation. Offsetting these to some extent were rises in the prices of medical care goods, alcohol and other goods.

"We see the fall in core goods prices in October as an indication that declining import prices and dollar strength continue to be passed through to consumer goods", says Barclays.

During October consumer prices were driven by solid increases in services prices, which more than offset a modest weakness in core goods prices. Following the decline in wholesale energy prices in recent months, gasoline and other energy prices were a drag on headline CPI for two consecutive months, but that came to an end in October. As a result, core CPI strength together with rebounding energy prices drove headline CPI higher.

"We continue to believe that the underlying trend in consumer prices is benign, especially for services inflation. We expect core goods prices to remain a drag, driven by the renewed decline in commodity prices and the recent surge in the value of the dollar, but their impact on overall CPI is likely to be transitory", added Barclays.