Household inflation pressures in America remained muted last month, according to a new report from the Bureau of Labor Statistics (BLS). Specifically, the consumer price index (CPI) for all urban consumers rose by 0.2 percent in September, in line with estimates and the smallest increase since May. “Core” CPI, which excludes the volatile food and energy components, also lifted by 0.2 percent last month but on an annual basis increased only 1.7 percent in September. That was below the consensus forecast of 1.8 percent and down fractionally from the August reading, meaning that household inflation is already moving further away from the Fed's goals than closer to them. Also of note is that much of the headline increase last month was simply due to another surge in used car prices as more Americans sought alternatives to public transportation, a likely lasting side effect of the pandemic.
A separate issue worth mentioning is that even though the above figures imply that overall inflation pressures were modest in September, the consumer price index for urban wage earners and clerical workers (CPI-W) actually rose for a fifth consecutive month. That is good news for the nearly 70 million Americans who receive Social Security benefits or Supplemental Security Income payments because the CPI-W is used to determine their annual cost of living adjustment (COLA). Immediately after the release of the September CPI data the Social Security Administration officially announced that the next COLA will be 1.3 percent, in line with our most recent forecast and a lot better than what many retirees were expecting earlier this year. For younger Americans it is worth reiterating that long-term participation in a tax-advantaged 401(k) retirement plan and other savings vehicles can help limit their old-age dependence on the government (Social Security), and in turn lower their financial sensitivity to annual COLAs.
Sources: Econoday, U.S. DoL, FRBSL