CPI Only Lower During 4 Other Periods Since 60s, Housing Starts Unexpectedly Rise, Building Permits Fall

- The Consumer Price Index for September fell .5% versus estimates of a .3% decline and a .2% rise in August.
- The CPI Ex Food & Energy for September rose .2% versus estimates of a .2% increase and a .2% rise in August.
- Housing Starts for September rose to 1772K versus estimates of 1640K and 1674K in August.
- Building Permits for September fell to 1619K versus estimates of 1710K and 1727K in August.

BOTTOM LINE: Consumer Prices in the US fell last moth by the most since November, reflecting cheaper energy that Fed officials expect will eventually bring down the inflation rate, Bloomberg reported. The CPI rose 2.1% year-over-year, the lowest since early 2004 and down from 4.7% in September 2005. This is substantially below the long-term average of around 3%. Moreover, the CPI has only been lower during 4 other periods since the Mid-60s. It was lower during 1986, late 1998-early 1999, late 2001-late 2002 and late 2003-early 2004. It is very obvious now, as I have said many times before, that recent inflation readings have been greatly affected by the mania in commodities. Over the last few years, the inflation hawks and record number of stock market bears constantly reminded us that “we have to drive and eat,” thus the focus should be on the CPI and not the core rate. I have always maintained that I believed we were experiencing a modest bout of inflation within the secular trend of disinflation. I still strongly believe this to be the case. While the core rate is still modestly elevated, I expect it to decelerate meaningfully over the intermediate-term, as well.

Housing starts in the US unexpectedly rose last month, as falling mortgage rates began to draw buyers back into the market, another sign the housing slump may be nearing a bottom, Bloomberg said. However, building permits dropped for an eighth straight month to the lowest level in five years which may result in lower housing inventories going forward. Moreover, starts are still down 18% from year-ago levels. Starts increased 14% in the South and 3.4% in the Mid-west. Starts fell 14.1% in the Northeast and 2.2% in the West. I continue to believe housing is in the process of stabilizing at relatively high levels.