After the latest blast of consumer inflation data, traders are facing a conundrum around how they should interpret the monthly numbers. September’s consumer price index report topped the Street’s expectations, rising 0.1% from the month prior and increasing at a pace of 2.4% over the past 12 months. Still, the annual inflation rate was the lowest since February 2021. Meanwhile, September’s producer price index report was flat for the month, coming in below the 0.1% advance anticipated by economists polled by Dow Jones. Considering that back in June 2022, the CPI grew by 9.1%, the recent cooling is welcome news. Further, September’s annualized pace of the 2.4% is very near the Fed’s target of 2% inflation, even if the underlying “core rate” of inflation was also above expectations. So, do we have a problem with inflation or with economists’ expectations? Economists’ expectations vs. Bureau of Labor Statistics The consumer price index, measured by the Bureau of Labor Statistics, is based on a large basket of goods and services. The bureau groups expenditures items into more than 200 categories and then into eight major groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. Those groups also include government-charged user fees, such as water and sewerage charges, according to the BLS. The CPI also includes taxes that are associated with the prices of goods and services, but excludes income and Social Security taxes that aren’t directly associated with the purchase of these items. While the BLS is compiling the data, private economists are building out models to mirror the CPI, sometimes with great success and sometimes not. Economists do a decent job of projecting where the economy is going. However, they have tended to miss – sometimes by large margins – the monthly economic numbers released by the market. We most certainly saw this recently with the huge undercounting of jobs created last month. Nonfarm payrolls leapt by 254,000 in September, compared to the 150,000 Dow Jones consensus estimate. Relative to expectations, September’s CPI number does not imply a reacceleration of inflation. Rather, the rate of consumer inflation continues to slow, albeit at a more modest pace than some had hoped for. Further, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said on CNBC’s ” Squawk on the Street ” Thursday that inflation has been cooling. When it comes to the question of whether there’s a problem with inflation or the economists’ forecasts, I would argue that it’s the latter. I’m more than satisfied with the inflation data — whether its CPI, the producer price index or the personal consumption expenditures price index — which is heading in the right direction. The Fed, along with the markets and the general population should be glad that the U.S. economy continues to grow , with less inflation than the rest of the known world. What remains unknown is why expectations and reality remain so far apart. — CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence fintech firm.
