October 13, 2020

The CPI rose 0.2% in September after rising 0.4% in August and 0.6% in both June and July.  The CPI excluding the volatile food and energy prices also rose 0.2% in September after climbing 0.4% in August, 0.6% in July and 0.2% in June.  However, the core CPI fell 0.1% in May and 0.4% in April which was the biggest decline in the history of the series which dates back to 1957.

Food prices were unchanged in September after having risen 0.1% in August.     Most of the price increases in food prices in the spring  were triggered by supply interruptions brought on by the corona virus.  They are in the process of reversing themselves as the supply chain returns to normal.

Energy prices rose 0,8% in September after climbing 0.9% in August, 2.5% in July and 5.1% in June.   Crude prices have largely reversed themselves after big declines earlier in the year and are back close to where they started before the recession began.  In the past year energy prices have declined  7.6%.

The CPI excluding the volatile food and energy prices rose 0.2% in September after climbing 0.4% in August and 0.6% in July  In the past year the so-called “core” CPI has risen 1.7%..  The big increases in July, August, and September were largely caused by increases in used car and truck prices of 2.3%, 5.4%, and 6.7%, respectively.  Buyers are apparently flooding the used-car market looking for deals amid high prices for new vehicles, low interest rates, and a shortage of new-vehicle inventory.  This situation should change once automobile manufacturers are able to ramp up production.  However, automobile production is being hampered by COVID social-distancing requirements in their factories.

But most of the declines in earlier months were triggered by the brief but extraordinarily deep recession.  As the economy recovers these price declines should prove to be temporary.  As people begin to crawl out of their holes restaurant prices, airfares, and lodging prices should rebound.

For what it is worth, we expect the CPI to rise just 1.3% in 2020 compared to a 2.3% increase in 2019.  The CPI ex food and energy is projected to increase 2.0% this year compared to an increase of 2.2% in 2019.

Stephen Slifer


Charleston, SC