U.S. Core Inflation Sets New Record Low for 12 Month Period at 0.6%

The Consumer Price Index (CPI) for All Urban Consumers (CPI-U) increased 0.2% in October, the U.S. Bureau of Labor Statistics (BLS) reported this morning. Over the last 12 months, the CPI-U increased a mere 1.2% and the trimmed-mean Consumer Price Index was virtually unchanged at 0.0% during the month. For the core CPI, the BLS noted that over the last 12 months, the index for all items less food and energy has risen 0.6%, which is the smallest 12-month increase in the history of the index, which dates to 1957.

Dr. David Krause, AIM program director said, "Despite higher gasoline prices in October (up 4.6%), the CPI was only up 0.2% because food prices were only up 0.1%. For the third consecutive month, core CPI remained flat. Year-over-year, the core inflation measure is only up 0.6 percent – the lowest reading on record."

He added, "Sarah Palin blasted the Federal Reserve's plan to buy up to $600 billion in bonds - referred to as QE2. She warned that this would unleash inflation. Palin also said that 'everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so.' Well, the year-over-year increase in food prices - which was announced today - was 1.4%. I don't see significant inflation on the horizon. And while I am not an expert on macro-economic forecasting, I think Sarah Palin and others should stick to politics and allow the Federal Reserve to do their job."

Source: Bianco Research

"Inflation is likely to remain low in the near term," Dr. Krause commented. "While I am bullish about manufacturing in 2011, given the significant amount of slack in the economy, I think manufacturers will be limited in their ability to pass along higher input costs to consumers. As consumer demand strengthens from an improving employment picture over the next several years, headline and core CPI should rise to between 1.5 - 2.0%.

Even the 10-year TIPS breakeven inflation rate is only slightly over 2.0% suggesting that the financial markets are not concerned about inflation. To me, job creation is more of a concern presently than runaway inflation and I believe the Fed should be allowed to operate independently."