Tuesday, October 1, 2013

Consumer prices likely up 0.1% in September, YoY up only 1.1%

- by New Deal democrat

For the last few months I have been using the change in the price of a gallon of gas to forecast that month's CPI in advance. My point has been, that all you really need to know about inflation is the price of gasoline. So far each prediction has turned out to be within 0.1% of the actual number.

Yesterday the E.I.A. reported for the final week of September, so we can estimate the inflation rate now. My method is to take the change in the price of a gallon of gas and divide by ten, then add 0.1% to 0.2% to account for core inflation, or else divide by 16 to be more conservative, to arrive at the non-seasonally adjusted inflation rate.

In August the average price of a gallon of gas was $3.57.4 This month it was $3.53.2. That is a -1.2% decline. Dividing by 10 gives us -0.12%, and adding 0.1% to 0.2% gives us -0.02% to +0.08%. Dividing by 16 gives us a -0.08% decline, and adding 0.1% to 0.2% gives us +0.02 to +0.12%.

The seasonal adjustment for September last year was +0.07%. This gives us a final seasonally adjusted inflation rate that rounds to +0.1% +/-0.1%.

That will replace last September's +0.5% inflation rate, so that the YoY inflation rate will be +1.1%, 0.1% above the lowest YoY inflation rate for the last 50 years outside of the great recession. This inflation rate is also subdued enough to suggest that real YoY wages have probably increased again in September, and may be closing in on their all-time high set in 2010.