Inflation is a closely watched topic these days. The US may have passed the peak of US inflation, but the Fed is concerned that inflation will not fall as quickly as it would like. The October CPI report may show a monthly acceleration compared to the previous two months, but the real question is where core inflation is heading for products like food and shelter.

Octobers’ CPI . Report

On Thursday, October 13th at 8.30am ET, we will have another US Consumer Price Index (CPI) report covering September 2022. The core number may not be as good as the two most recent reports as inflation has been basically flat month after month.

Inflation Nowcast

The Cleveland Fed’s Nowcast Inflation Index that measures fluctuations in energy and other prices, inflation for September came in at 0.3% on a monthly basis. Of course, these forecasts may be updated as more data comes in, but if that proves it won’t do much to bring down general inflation which will remain at around 8% yoy because inflation in the corresponding period in September 2021 was 0.4% m/m.

Looking beyond energy

The main story of the last two CPI releases for July and August was that energy prices, like gasoline costs, fell big enough to keep prices overall. Gasoline prices are currently trending lower for September as well.

This is welcome, and certainly helps consumer budgets, but the Fed knows that fluctuations in energy are often transient and that what they really worry about is core inflation of products and services like food, cars, housing and health care.

Concern about the September CPI report

That was the problem with the September CPI report. Yes, inflation looked basically flat on a monthly basis, but beneath the surface, the drop in energy prices was only due to a sharp rise in a lot of other prices.

The concern is that once energy prices fall, the Fed will be left with higher inflation than it wants to see. Those prices that exceed capacity are the most predictive of inflation trends in the medium term.

So interpreting the October CPI report will require looking beyond raw numbers to examine trends in the prices of food, shelter, and goods and services other than energy. It is those prices that are creeping in at a faster rate than the Fed wants to see and create fears that inflation could become a long-term problem for the US economy. Two main categories to watch are food and shelter, and they carry significant weights in CPI inflation calculations.


Food price inflation has ruptured but the good news is that there is a chance that it will start to subside. PPI data on agricultural products for August shows that producer prices may have started to fall, in aggregate, but only this month of data after a strong rise in food prices, so it may not become the broader trend. There is also the question of how much and how quickly farm prices fall, if they are constant, translating into lower food costs for end consumers.


The cost of housing is a major component of the consumer price index. Prices accelerated in the August report, so September data will be closely watched. There are some signs that the housing market is in decline with mortgage rates skyrocketing, but how and when this appears in the CPI report is still unknown.

What to watch

The October CPI report may show another moderate increase in prices overall as energy prices moderate or stabilize. However, the key question for the Fed is how a broader set of prices are headed.

The September report was a cause for concern in this regard. However, there are some early signs that key prices for both housing and food are beginning to moderate. However, the strength of these trends and whether they will start to show up in the October CPI report remains unclear.

Markets are currently reasonably comfortable that the Fed will start easing up on interest rate hikes as 2022 comes to a close, but the Fed hasn't seen the positive data it's looking for just yet. It appears that in terms of inflation, either the markets are overly optimistic or the Federal Reserve may be overly cautious. The upcoming CPI report for October may help begin to resolve this apparent discrepancy.