Some readers may question why we discuss inflation so much since it hasn’t catalyzed a change in the economic cycle in years. We contend the lack of inflation has been a major reason why this has the potential to be the longest expansion in over 100 years. With that in mind, we’ll look at the September PPI and CPI inflation readings which were released this week. Both readings showed weak inflation, with PPI sending more of a mixed signal and CPI showing deceleration in price growth.

The producer price index is early in the supply chain, meaning it shows where inflation could be headed if producers directly pass down changes in costs to the consumer. Sometimes cost increases aren’t passed down right away because producers worry about losing sales and market share. This was a mostly dull PPI reading that was helped by transport services and brought down by trade services. Specifically, month over month headline PPI was up 0.2% which met estimates. It was up 2.6% year over year which was a 0.2% deceleration from August. Transport prices drove inflation as the shipping sector had capacity constraints. Transport prices were up 1.8% month over month and 5.9% year over year. There is a lack of trucks and drivers.

Headline inflation was almost the same as it was without food and energy. Core inflation was 0.2% month over month and 2.5% year over year. The difference here is year over year inflation accelerated 0.2%. Even though food and energy are volatile with spikes occurring often, energy prices were down 0.8% and food prices were down 0.6%. Goods prices overall were down 0.1%. Construction prices were only up 0.1%, but they did increase 3.4% year over year. This industry has capacity constraints.

Tariffs aren’t increasing metals prices any further as steel mill prices were flat month over month and aluminum prices fell 0.3%. The year over year growth of 18.1% and 10.7% reflects the spike after the tariffs. The one reading which showed heightened inflation was core inflation which also excludes trade services. That was up 0.4% month over month and 2.9% year over year. It was high because trade services inflation was weak again.