The month-on-month CPI headline (core) was at the Bloomberg consensus (0.1 percentage points above). The PPI was 0.3 percentage points higher than the market expectation of 0.4 percentage points month-on-month. Year-over-year core CPI continued to decline, while instantaneous core inflation was flat.
figure 1: CPI headline inflation (bold black), core inflation (tan), monthly sticky prices (pink), monthly median (red), monthly 16% trim (sky blue) and instantaneous values (per Eckhout, T=12, a=4) (green) are calculated based on annual rates. Source: BLS, Cleveland Fed, Atlanta Fed (via FRED), and author’s calculations.
All monthly series are trending upward, even excluding energy prices.
Having said that, it is useful to look at other measures of underlying inflation (CPI and PCE deflator).In Figure 2, I show the instantaneous (per EckhoutT=12, a=4) measures.
figure 2: CPI overall instantaneous inflation (bold black), core CPI inflation (yellow-green), PCE deflator (blue), core PCE deflator (light blue), (per Eckhout, T=12, a=4), all calculated based on annual rates. Source: BLS via FRED and author’s calculations.
CPI data is a key input to the Cleveland Fed’s PCE live forecast. Based on the latest data, we see the following instantaneous inflation figures for headline and core PCE.
image 3: PCE deflator instantaneous inflation (bold blue) and core PCE deflator inflation (light blue), per Eckhout, T=12, a=4, calculated on an annual basis. August observations are based on the Cleveland Fed PCE live forecast. 2% target cyan dashed line. Source: BEA via FRED, Cleveland Fed Live Forecast accessed September 14, 2023, and author’s calculations.
If core PCE is what matters, then the incoming data supports the case that trend inflation has declined, but progress toward a further decline is stalled.