Core Inflation Moving Up?

The October reading for the consumer price index was released last week and showed a continuation of the low rate of inflation we’ve seen throughout much of 2015. The headline number, which has been heavily impacted by the drop in the price of oil over the last 18 months, showed 0.2% year-over-year growth. The core reading, which excludes food and energy, rose 0.2% from September to October, and was up 1.9% versus the year-ago period. The core rate is watched by the market to gauge underlying inflationary pressures, as food and energy prices tend to be volatile. In related news, wage growth is also starting to show signs of life, at least anecdotally. Research Company Thompson Reuters recently reported that 20 S&P 500 companies flagged labor costs, a shortage of workers or wage pressure as headwinds when reporting third quarter financial results. This is up from 12 companies in Q2. While one quarter doesn’t make a trend, and core CPI is well ahead of Core PCE (the Fed’s preferred measure of inflation), these developments are certainly worth watching for bond investors.

Sources:  Bloomberg, Thompson Reuters