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    US Consumer Inflation Falls in September, but Core Rate Rises

    Consumer prices slipped in September pushed lower by falling gasoline costs but the highest core rate in 14 months suggested that the disinflationary pressures from the year- long collapse in oil prices may be abating.

    The consumer price index sank 0.2 percent as forecast, following August's 0.1 percent decline, according to Labor Department data.  It was the largest monthly decrease since the index plunged 0.7 percent in January.

    Over the year CPI was unchanged in September down from a 0.2 percent annual increase in August and the first flat result since May.

    So far this year the monthly average for the consuemr price index over the prior twelve months in unchanged. This is the first post war instance of prolonged flat or negative prices not associated with a recession.

    Core inflation, which excludes food and energy prices, rose 0.2 percent in September as predicted. Annual core inflation edged up to 1.9 percent from 1.8 percent in August reaching its highest level since July 2014. 

    Last month the price of a gallon of regular gasoline fell 6.5 percent according to the American Automobile Association, after declining 7.3 percent in August. Food prices rose 0.4 percent, the largest increase since May 2014, after rising 0.2 percent the prior month. 

    The Federal Reserve which cited persistently low inflation as one of the reasons for delaying a Fed Funds rate increase at the October FOMC meeting, might take some comfort from the rise in annual core inflation, even though its preferred price gauge, the core PCE price index rose just 1.3 percent in August and has not been at the Fed's 2 percent target since April 2012. The overall annual PCE index was at 0.3 percent in August. 

    Belying the pickup in core CPI was the producer price index (PPI), reported yesterday by the Bureau of Labor Statistics.

    The index which tracks the price of goods as they leave production, fell 0.5 percent in September, more than twice the 0.2 percent forecast and a sharp drop from the flat level in August. Core PPI declined 0.3 percent on the month, far weaker than the 0.1 percent gain forecast and a dramatic reversal of August's 0.3 percent rise. 

    Annual PPI declined in both the overall and core measures in September. Headline PPI fell to -1.1 percent from -0.8 percent in August for the lowest reading since May.  Annual producer prices have fallen for eight straight months and have averaged -0.8 percent this year.

    Core annual PPI rose 0.8 percent in September, 0.1 percent down from August's 0.9 percent rate and one third below the 1.2 percent forecast. It has averaged 0.8 percent this year. 

    Weak producer prices reflect the generally poor retail environment which make it difficult for manufacturers and retailers to raise prices as well as the falling costs of commodites and stagnant wages. 

    Retail sales rose just 0.1 percent in September after being flat in August, and, excluding autos, they fell 0.3 percent following a 0.1 percent drop in August. The annual increases in September, 2.4 percent for overall retail sales and 0.8 percent for the ex-auto rate are less than half the historical averages.  

    Average hourly earnings were up just 2.2 percent on the year in September, about two thirds their pre-recession average.

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

    Charts: Bloomberg

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