Household inflation pressures remained muted last month, according to a new report from the Bureau of Labor Statistics. Specifically, the core consumer price index (CPI), which excludes the volatile food and energy components, rose by 0.2 percent in October and 2.3 percent over the past twelve months. The annual pace of growth is down from 2.4 percent in September and below analysts' estimates. CPI often runs higher than other popular measures of inflation in America, but even this gauge suggests the various rounds of tariffs implemented during the trade war between the U.S. and China have yet to generate a meaningful increase in household price pressures. This is due in part to many companies simply preferring to absorb any uptick in input costs, at least for the time being.
Firms that have used recent tax savings to invest in productivity-boosting initiatives will likely have had an easier time bearing the brunt of the tariffs, and they should also be better prepared for the tight labor market’s continued upward pressure on wages. Slower increases in rent and other shelter costs and outright declines in the prices of apparel and automobiles have also helped keep household inflation measures in check this year. This environment has been supportive of real wage growth for many Americans (see below), but exactly how long it can last remains unknown. The latest consumer survey by the University of Michigan suggests that Americans expect inflation to average just 2.4 percent over the next five years, and the Federal Reserve’s most recent projections imply even softer price pressures during the same horizon. However, things could quickly change if the headwinds from the trade war and overall policy uncertainty continue to abate and economic growth increasingly surprises to the upside.
Sources: Econoday, U.S. DoL, UoM, FRBG, FRBSL