Key inflation measure increased in September

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The Department of Labor's Bureau of Labor Statistics (BLS) announced today the Consumer Price Index (CPI) increased 0.2 percent in September, with the annual rate increasing to 2.4 percent over the last 12 months. The core CPI number - which removes food and energy prices - rose 3.3 percent since last year.

Senior economist Ryan Young analyzed the findings:

"The Fed's recent interest rate cut had no influence on today's inflation numbers, good or bad. It typically takes six months to a year for interest rate adjustments to have any effect.

"The headline CPI number is still above the 2 percent target rate, but slowly moving in the right direction. The current 2.4 percent reading is the lowest in about three years.

"The core CPI number is more concerning, at 3.3 percent. The core number removes volatile food and energy prices, which fluctuate for reasons having nothing to do with monetary inflation. One of the CPI's flaws is that captures a lot more than just inflation. The core number is a little less noisy.

"The Fed has followed good monetary policy for the last two and a half years. The remaining obstacle is credibility. Markets don't believe the Fed or Congress can restrain themselves when it comes to stimulus. The minute the economy starts to weaken, markets expect Congress to ramp up spending, and the Fed to loosen its monetary policy. Both things cause inflation.

"Markets are probably right to distrust authorities. The Fed already took a pre-emptive strike on interest rate cuts, even though both growth and unemployment remain strong. Over in the political branches, neither party has credibility on spending restraint. So, inflation may hover above target levels for a while to come, especially if the Fed makes further interest rate cuts in November and December."