CPI Has Caught Up With PPIby Tim Manni
The Consumer Price Index (CPI) exceeded analysts’ expectations dropping 1% in October. Core CPI, which excludes the volatile costs of food and energy, fell by 0.1%. The stark drop in food and energy prices, combined with an economy in slow motion, has forced the price of goods lower.
When we reported yesterday on the third-consecutive monthly drop in the Producer Price Index (PPI), we said “Cheaper costs in the coming months should begin to lower the Consumer Price Index (CPI ), a measurement of cost on the consumer’s end.” We were right — the natural lag between production and purchase explains why the PPI has dropped three months in a row, while the CPI has only experienced its first.
These two reports have begun to quell inflation anxiety, all the while stirring a new pot of worry: deflation. We’ve all seen the reports — consumer spending has plummeted, and many experts have predicted this holiday season will be one of the worst on record. If consumers adopt a retail mentality that mirrors the current homebuying mentality — since prices are steadily dropping I’ll continue to sit on the sidelines and wait for prices to continue to fall before I purchase — deflation could become a legitimate concern. A dismal outlook for the holiday-shopping season has many retailers already advertising extreme sales and low prices. Cheaper food and energy prices have provided consumers with some extra money that would have otherwise been spent on filling the tank or at the grocery store. Let’s just hope they use it.