August CPI rose .3%, in line with expectations but the core rate was flat vs the forecast of up .1%. CPI is up 1.1% y/o/y and .9% ex f&f. Keeping a lid on the core rate continues to be Owners Equivalent Rent, which makes up 25% of headline CPI and about 40% of the core. Aug OER was flat after the two prior months which saw .1% gains. The y/o/y fall in OER is .3%. Landlords are dealing with a soft economy and unsold homes being rented on one hand and a secular downward trend in the homeownership rate that will increase the amount of renters on the other. After 3 strong gains in apparel prices, they fell .1%. Commodity prices, which make up 40% of CPI, were up .5%, mostly led by energy and food. Bottom line, a flat core CPI gives the Fed the belief that they have a license to continue their extraordinary policies but here’s perspective, the CPI is up 29% over the past 10 yrs and is down .6% from its record high. And they call that deflation.
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