CPI: Key Categories Consistent with Declining Trend

Bottom Line: After several months of sharply higher prices for medical care services, prices in this critical segment of core CPI fell, easing core price pressures even more than expected in October. The core CPI was up 0.3%, two-tenths less than expected. Owner's Equivalent Rent (OER), a key measure of shelter prices and nearly a third of core CPI, rose 0.6%, two-tenths less than a month prior. Against that, hotel prices ("lodging away from home") were sharply higher, pushing the overall shelter category higher --- but the move in OER was much more critical for gauging the trend and its consistent 14-month lagged correlation with home prices. Used car prices were lower, as expected, given leading indicators in that space. And apparel prices were also lower. Finally, at the headline level, food prices remained a source of historically strong upward pressure but showed signs of easing slightly on a trend basis. Gasoline prices were higher but were primarily offset by lower utility prices, mainly piped natural gas. Overall, this report was consistent with a slow easing in consumer price pressures. Lower prices in medical care services were a relief as a potential upward trend was developing (still possible, but now looking more like normal volatility). Moreover, the move in OER was consistent with our models that suggest slower OER gains until the spring, when we expect one more push higher, followed by sharp outright declines in the late 3rd Quarter of 2023.The CPI ROSE by 0.44% in October, compared with market expectations for an increase of 0.60%.Food prices increased by 0.60% while energy prices rose by 1.8%.  Prices for gasoline rose by 4.0% while prices for fuel oil increased by 10.5%, prices for electricity climbed by 0.1%, but prices for natural gas fell by 4.6%.  Energy prices are now 17.6% ABOVE their year-ago level.  Overall consumer prices are now 7.8% ABOVE their year-ago level; in October 2021, consumer prices were 6.2% ABOVE their year-ago level.The Core CPI ROSE by 0.27%, compared with market expectations for an increase of 0.50%.  Prices for commodities excluding food and energy commodities fell by 0.4%. Gains in alcoholic beverages (+0.8%), new vehicles (+0.4%),  were offset by declines in used cars & trucks (-2.4%), and apparel (-0.7%). Prices for services excluding energy services rose 0.5% with a moderate increase in transportation (+0.8%), shelter (+0.8%), and owner's equivalent rent (+0.6%). Core consumer prices are now 6.3% ABOVE their year-ago level; in October 2021, consumer prices were 4.6% ABOVE their year-ago level.