UNITED STATES — The year-over-year increase in core inflation dropped back down to 1.7 percent in October. After holding steady at 1.7 percent four five consecutive months, the rate moved up to 1.8 percent in October. The increase continues to be constrained by a large drop in telecommunications prices earlier this year and in apparel prices in November.
The absence of inflation pressures has been a puzzle with respect to the U.S. economy, reported Paul Ferley, assistant chief economist at RBC.
He noted, “Indications, such as a low unemployment rate, are indicative of the economy operating close to capacity. Operating at capacity is usually associated with inflation pressures starting to build with businesses having increased difficulty responding to rising demand because of resource constraints and thus temper demand by raising prices.”
He added, “Today’s report provides some confirmation of retailers responding in this expected manner with services prices up 2.6 percent over the past year. However, it is being offset by lower goods prices. Our expectation is that the growing capacity constraints will increasingly see the price performance of the former dominate with core inflation resuming an upward trend.”
Highlights from the report include:
- Headline CPI rose an expected 0.4 percent sending the annual rate up to 2.2 percent from 2.0 percent in October.
- A 7.3 percent monthly jump in gasoline prices provided a lion’s share of the increase.
- Excluding food and energy prices, ‘core’ CPI rose 0.1 percent in the month and 1.7 percent over the year.
SOURCE: RBC press releasee