CPI Analysis

You can find the Department of Labor data here ...
http://www.bls.gov/news.release/cpi.nr0.htm

Here's my analysis (that I just sent to Bloomberg)

The September consumer price index numbers are in, and while we can argue whether they really effectively measure inflation, the numbers do move the market. The Cliff’s Notes version: Inflation is heating up.

The September headline CPI number was up 0.3%, compared to a 0.1% decline in August. A lot of people watch the energy component of the headline CPI. Well, the index for energy, which declined in each of the preceding three months, rose 0.3% in September – remember, it declined in June, July and August.

The big mover in September wasn’t energy – it was food. Food and beverages climbed 4.4% in September. The food index rose at a 5.7% seasonally adjusted annual rate (SAAR) in the first nine months of 2007 after advancing 2.1% in all of 2006. At the grocery store, it was even worse. Grocery store food prices increased at a 6.7% annual rate in the first nine months of 2007.

I wrote about food inflation in a MoneyandMarkets.com column that was published today. You can find it here: http://moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1106

Food and energy are excluded from core CPI, making it effectively useless. Still, for those keeping track, September core CPI rose 0.2%. Rents came down a bit, clothing was up a bit. If you’re not measuring food and energy, it’s easy to get a low number.

Year over year, the headline CPI number was up 2.8%, and core was up 2.1%. Year-to-date, inflation is running at a 3.6% rate. Compare that to a 2.5% rate for all of 2006. Again, energy is leading the way – up 11.7% so far, year to date, compared with 2.9% in all of 2006.

I believe that inflation is going to heat up going forward, led by energy and food. Keep your eye on food. As I say in my MoneyandMarkets.com column, American consumers now spend about 8.5% on food at home. That's way down from an average of 19% of the total budget in 1960. Historically, food takes up a much larger part of our budget, and I think it’s going to do that again.

Check out my new gold and energy blog at MoneyAndMarkets.com