Prices rise, "deflation" nearly averted

The Labor Department reported that consumer prices rose more than expected last month, largely due to higher prices for automobiles and rising energy costs, and the year-over-year inflation rate moved back toward zero after spending nearly all of 2009 in negative territory as shown below.The government's measure of inflation rose 0.3 percent in October after an increase of 0.2 percent in September, the ninth monthly increase in prices so far this year after three months of plunging prices late last year, again, largely due to energy.

After sinking as low as -1.9 percent (on a seasonally adjusted basis) at mid-year, the annual inflation rate has now recovered to just -0.2 percent and is likely to move into positive territory next month, remaining there well into next year as energy price comparisons from year ago levels will produce some rather large percentage gains, that is, unless the price at the pump tumbles from its current level.

The 1.5 percent gain in energy costs last month, paced by an increase of 1.6 percent in gasoline prices, put the year-over-year change in the closely watched energy index at -14.0 percent in October, up sharply from many months of readings at -20 percent or more, and this is likely to produce a positive number when the November data is reported next month.
Aside from energy, there is little excitement in the inflation data these days as consumer prices still appear to be under control, the downside now well protected by the government's proxy for the cost of home ownership - the nefarious owners' equivalent rent - which stubbornly refuses to go down despite home prices that have been falling for years.

Owners' equivalent rent now shows an annual increase of 1.2 percent, a result that is clearly at odds with other homeownership costs.

Rental costs are also reported to be up 1.2 percent from last year but, given all the anecdotal accounts of landlords bending over backwards to attract tenants and reports of falling rental costs in most of the country, this seems to be at odds with the reality on the ground as well.

Of course, that seems to be standard operating procedure for the government inflation data.