Inflation is back in the crosshairs.

I wanted to begin by sending thoughts and prayers to the Southeastern US, which has had a rough two weeks with hurricanes Helene and Milton.

This week ended relatively flat for interest rates. We saw the results of two inflation reports: the Consumer Price Index (CPI) and the Producer Price Index (PPI). The CPI measures the price changes of goods and services that consumers incur, while the PPI measures the costs that are incurred on the wholesale side, prior to being passed through to consumers. Some of these price changes don’t get passed through to consumers, so CPI is generally a more important report. 

The other big inflation report, the Personal Consumption Expenditures (PCE) report, is the Fed’s favorite inflation report, which will come out later this month. One big difference between CPI and PCE is the weighting of shelter costs. CPI has shelter at 45.8% of the entire index. That is huge. PCE is about half of this. Shelter is a very lagging indicator since people don’t change their housing costs monthly. Typically, housing costs change annually or sometimes every couple of years. This is why we can see the changes in shelter costs take time to catch up to reality.

September headline CPI rose 0.2%, which was hotter than estimated. Year-over-year inflation declined from 2.5% to 2.4%, which was slightly higher than the expected 2.3%. Core CPI, which strips out the volatile food and energy costs, increased by 0.3% versus the 0.2% expected. Annually, Core CPI increased from 3.2% to 3.3%. Transportation costs, especially motor vehicle insurance, which is still over 16% higher than last year, is one of the big factors holding inflation high. 

Looking Ahead:

Next week is going to be a slower news week as well as a shorter one with the federal holiday closure on Monday:

• Thursday: Retail sales, Initial Jobless Claims
• Friday: Housing Starts and Permits

Again, my thoughts and prayers go out to everyone dealing with the aftermath of these two historic storms.