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Annual Cost of Living Increase Lowest Since 1957

Consumer prices in the United States rose less than expected in October, the U.S. Bureau of Labor said. The increase last month in the Consumer Price Index (CPI) measured 0.2 percent on a seasonally adjusted basis, below economists’ expectations. Over the last 12 months, the all-items index increased 1.2 percent before seasonal adjustment.

The increase in the energy index was the major factor in the all-items seasonally adjusted increase, the bureau said. The gasoline index rose for the fourth month in a row and accounted for almost 90 percent of the all-items increase. The household energy index rose as well, as did the food index, but the food at home index was unchanged.

Excluding food and energy prices, the core CPIwas flat for the third straight month. Indexes for shelter and medical care rose, the bureau said, but those increases were offset by declines in a wide array of indexes, including new vehicles, used cars and trucks, apparel, recreation and tobacco.

Over the past 12 months, the core CPI posted an increase of only.6 percent, the lowest annual cost increase in the history of the index, which dates to 1957. The energy index rose 5.9 percent over that period with gasoline leading the increase at 9.5 percent. The food index rose 1.4 percent over that span, with both the food at home index and food away from home index rising the same 1.4 percent.

The CPI is a measure of the average change in prices over time of goods and services purchased by households, including food, clothing, shelter, fuel, transportation fares, the services of doctors and dentists and other goods and services used for day-to-day-living.

The potential effect of this historically low increase in the core CPI  on the economy and business is now being analyzed and debated.The Small Business & Entrepreneurship Council (SBE Council) called the new CPI numbers "yesterday's inflation news."

"Regarding CPI inflation of 0.2 percent for October and 1.2 percent for the past year, the big question is: What do these numbers mean, if anything, for the Federal Reserve's announced 'quantitative easing' earlier this month?" said Raymond Keating, the SBE Council's chief economist. "Keep in mind that the CPI numbers are yesterday's inflation news. The numbers offer value to the extent that they might show a trend. And quite frankly, combined with a heating up in the producer price index (PPI) over the last four months (with PPI 'inflation' running at an annualized 4.2 percent rate), the slightly stepped up CPI inflation annualized rate of 2.7 percent for the past four months warrants some watching."

"Indeed, there's a heck of a lot to watch and be concerned about in terms of monetary policy and the potential for future inflation. The Fed's previous opening of the monetary floodgates - particularly from September 2008 to February 2010 - and its pledge for more quantitative easing in coming months mean that rising inflation is expanding as a significant future risk."

The effect of the CPI on manufacturing depends to an extent on what manufacturing industry you’re talking about, according to the National Association of Manufacturers (NAM).

"There are some big components of the CPI, like housing, that are down," said David Huether, NAM's chief economist."That’s a primary driver of it.  In manufacturing, after prices declined in 2008 and most of 2009, pricing power was up 5.5 percent in October compared to a year earlier.  Part of this increase was due to the fact that the prices of some products, like exports, most of which are manufactured goods, have been buttressed by recoveries abroad and are growing much faster than during the initial stages of recovery following the 2001 recession. Meanwhile, manufacturers connected with struggling areas of the economy, like housing, are still trying to gain a footing in this weak recovery.  There are 19 major manufacturing industries. The effect of the CPI on manufacturing depends to an extent on what manufacturing industry you’re talking about. Those in industries with reduced demand will have less pricing power.”

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Reach BusinessNewsDaily senior writer Ned Smith at Follow him on Twitter @nedbsmith.

Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.