U.S. CPI Shows Inflation at Highest Point in 30 Years

Snapshot

The U.S. Bureau of Labor Statistics (BLS) reported this morning that the Consumer Price Index (CPI) had increased a seasonally adjusted +0.9% in October after a rise of +0.4% in September, which was notably higher than the 0.6% gain expected. 

The release showed that the key inflation index had also risen by +6.2% over the last 12 months before seasonal adjustment, showing the highest increase since November of 1990. Most of the rise in prices came from the energy sector, as the chart below shows. 

The forex market reacted to the higher than expected inflation news with a rally in the U.S. Dollar. The U.S. Dollar Index (DXY) rose 0.97% to 94.87, after closing yesterday at 93.96 based on increased expectations of tightening moves by the U.S. Federal Reserve Bank.  

Graph of 12-month percentage change in major components of the CPI not seasonally adjusted. Source: Bureau of Labor Statistics. 

Detail

The BLS’s price index for all items excluding food and energy products, also known as Core CPI, increased by +0.6% in October after a +0.2% increase in September. The analyst consensus was for an increase of only +0.4%.

Notably, the BLS’s energy index increased by +4.8% and its gasoline index gained +6.1% in October, while prices of other energy components in the CPI-U also rose. Overall, energy prices showed a whopping gain of 30% year on year. Energy prices can be volatile, but they make up one of the most important CPI components since transportation costs can directly affect the prices of other products.

The BLS’s CPI Index for All Urban Consumers (CPI-U) showed a broad-based increase in the prices of energy, food, shelter, used cars and trucks, new vehicles, recreation, household furnishing and operations, and medical care. Airfares and alcoholic beverage prices were among the few items to show lower prices last month.  

Consumer prices contribute to the lion’s share of inflation in an economy. Forex traders watch such inflation numbers closely because rising prices can prompt central banks to raise benchmark interest rates to respond to inflation containment mandates.

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