Core Inflation Creeps Higher in September

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October 17, 2007 (Prices Byte)

Core Inflation Creeps Higher in September

Prices Byte by Dean Baker

For Immediate Release: October 17, 2007
Contact: Alan Barber, (202) 293-5380 x115

“Slow productivity growth and higher import prices could push inflation higher."

The core CPI inflation rate was 0.2 percent in September, largely in line with expectations. The September figure brought the annual rate of inflation in the core over the last three months to 2.5 percent, slightly higher than the 2.1 percent rate over the last year. The overall CPI rose by 0.3 percent for September, driven by a 0.3 percent rise in energy prices and a 0.5 percent rise in food prices. The overall CPI has risen at just a 1.0 percent annual rate over the last three months, down from a 2.8 percent rate over the last year.

There were a number of anomalies in the September data. On the high side, hotel costs rose by 1.0 percent, more than reversing a 0.6 percent drop in August, and the apparel and recreation components both increased by 0.3 percent. Apparel prices have fallen 1.8 percent over the last year. The September rise followed a 0.5 percent fall in August. Apparel prices may level off, but are unlikely to rise by much in the foreseeable future. The recreation component had been virtually flat over the last year. The September rise follows declines of 0.1 percent the prior two months. It also is not likely to be repeated.

On the low side, new car prices fell by 0.3 percent. This is likely to be reversed in the months ahead, with car prices on a flat or perhaps slightly downward price path. Tuition costs fell by 0.3 percent, the first decline since a 0.3 percent drop in August of 1998. This drop is also likely to be reversed in the months ahead. Medical care costs increased by a relatively low 0.3 percent, but this followed rises of 0.6 percent and 0.5 percent in July and August, respectively. Medical care costs have increased at a 4.6 percent rate over the last year and are likely still on this path.

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