October CPI, Industrial Production

Prices Take a Breather, Manufacturing Forges Ahead

  • The Consumer Price Index for October decreased by 0.1 percent as energy prices eased.
  • The core CPI gained just 0.1 percent in October, but is up 2.1 percent over the last year.
  • Industrial Production for October increased by 0.7 percent. Manufacturing output gained 0.5 percent.

Consumer prices took a breather in October, as the headline CPI dipped by 0.1 percent, adding to a recent string of better domestic economic news. Easing consumer prices should allow for real disposable income to increase for the month, a rare event in 2011. Easing prices will also give the Federal Reserve a little more maneuvering room as it considers further monetary policy options. However, lurking in the shadows is the run-up in crude oil prices, now near $100 a barrel; roughly a third higher than the early October low of $75 a barrel. If the $100/barrel price point holds for U.S. crude, then gasoline prices could add another 10 cents per gallon from the current national average AAA price of $3.40 per gallon. Food prices also relaxed in October, but did not retreat from recent gains, up 0.1 percent for the month. The core CPI (less food and energy) increased a sedate 0.1 percent in October. Automobile prices put pressure on the core CPI over the summer as dealer inventories shrunk in the aftermath of the Japan earthquake.  The July rebound in auto production has now allowed new car prices to ease by 0.2 percent in September and by another 0.1 percent in October. The important owners’ equivalent rent component of housing prices increased by 0.2 percent in October. Firming apartment rents will keep pressure on the overall housing price index despite still-soft house sales prices in many areas. Over the last 12 months the core CPI is now up by 2.1 percent.

Industrial production increased by 0.7 percent in October, but September production was revised down to show a 0.1 percent decline, after a flat August. The October production increase is positive news, but with the historical revision we now see just two monthly increases, July and October, over the last five months. Manufacturing output was up by 0.5 percent in October, as motor vehicle and parts production jumped by 3.1 percent. Vehicle assemblies increased to a 9.3 million unit annual rate. Oil and gas drilling continues to show solid gains, up 1.4 percent in October. Overall capacity utilization firmed up to 77.8 percent; still loose by historical standards, but heading in the right direction.

Market Reaction: Equities opened with losses. Treasury yields are falling at the long end of the yield curve. Oil is up to $101.45/barrel. The dollar is down against the yen and up against the euro.CPI

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