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Analysis: CPI Blasts Past Expectations; Price Increases Widespread

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The October CPI data came in even hotter than expected, and we saw widespread price increases across multiple categories.

The following provides an in-depth analysis of the most recent CPI data.

The latest seasonally adjusted inflation rate was 0.95% month over month (vs. 0.6% expected), with a non-seasonally adjusted annual rate of 6.2% (vs 5.6% expected). The reason for the sharp increase can be seen across the board.

The unrounded number is calculated by using the actual BLS weights and indexes. The recalculation is done to gain an extra decimal point and see the direct impact of each component on the overall average.

As the chart below shows the main drivers were energy, food, shelter, and commodities (more detail below).

Figure: 1 Month Over Month Inflation

The year-over-year chart below shows how commodities (goods) and energy have really been driving the numbers this year. That being said, other categories are starting to show their impact as the energy price increases work through the economy.

Figure: 2 Year Over Year Inflation

The plot below compares the recent numbers with the year-over-year monthly average. This chart shows the massive move in October. Nearly every category is above their 12-month average except for Household Ops and Waste Mgmt. The combined weighting for these two categories is 2% against the entire CPI so the impact is negligible on the overall number.

Energy has more than doubled the 12-month average. And Shelter is up .5% vs .3% on the 12 month average.

Figure: 3 MoM vs TTM

The table below gives a more detailed breakdown of the numbers. It shows the actual figures reported by the BLS side by side with the recalculated and unrounded numbers. The weighted column shows the contribution each value makes to the aggregated number. Some key takeaways:

  • Shelter clocked in at .5% MoM and 3.5% YoY, contributing .15% to the MoM total
  • Energy is blasting higher, up 4.77% MoM and 30% YoY, contributing .35% to the MoM total
    • Fuel Oil, Propane, Gasoline, and even Firewood were all up over 6% in the month!
    • Only Electricity held this number back from being even higher, “only” up 1.8% MoM
  • Commodities were up 1% MoM and 8.5% YoY, contributing .22% to the MoM total
    • Unfortunately, unlike previous months where this was driven primarily by Used Cars, the issue is more widespread
    • Used Cars were up 2.5%, but Household Furnishings were up .8%, Medical Care Commodities (e.g. medical drugs) up .6%, and Other Goods were up 1.2% (e.g. Personal Care Goods)
  • Food was up .9% MoM and 5.3% YoY, contributing .22% to the MoM total
    • This was driven by both Food at Home and Away From Home
    • At Home showed widespread increases as well with bakery Products, Meats, Beverages, and Other Food all up nearly 1% or more

Figure: 4 Inflation Detail

In short, the CPI numbers are showing widespread increases across many categories. Earlier this year, the Fed pointed to specific items like Used Cars and Lumber to argue that price increases were transitory. The narrative is all but dead. Furthermore, many companies have announced price increases for this year and next year.

Energy continues to really move up and this will also push prices up across the board. Almost every good relies on energy of some kind. If energy doesn’t come back down soon then these general price increases are only the beginning.

What is the Fed looking at?

So, “transitory” inflation? Not so much. Maybe the Fed is looking at different data? While the Fed does have different categories, their numbers match the BLS.

In fact, their data goes back to the 1950s. Unfortunately, they do not publish the weightings of each category so it would be impossible to do a similar analysis showing the impact of each category on the overall number.

Looking at history back to 1950 puts the current spike into perspective. The last time the economy saw a spike similar to the current one was in 2008. Inflation was tempered then by the Global Financial Crisis. What is going to stop the explosion in prices this time? Especially with the Fed continuing to grow its balance sheet and expand the money supply each month.

Figure: 5 Fed CPI

Using the Fed categorical data, which is different than the BLS, the next chart shows the current period versus TTM and trailing twenty years. As can be seen, the blue bars are showing higher readings across every single category except Apparel (weighted 2.7% at BLS). This means the Fed has to hope that all other seven categories prove to be transitory.

How can anyone look at this chart and not be greatly concerned? The blue bars are not just slightly above their historical averages, they are way above.

Figure: 6 Current vs History

Historical Perspective

Recalculating the BLS number is not a perfect science. The weightings must be scraped from the web pages. The index data is then gathered using an API. Each index comes seasonally adjusted and unadjusted. Regardless, putting the historical data together provides a good perspective on the current period.

The BLS weightings have only been scraped back to 2012, thus the chart below shows the past 9 years of annual inflation data. The volatility in Energy can be seen clearly over this time period. The base effect in transportation (purple) can also be seen with the decreases in 2020 followed by the increases in 2021. Finally, the recent impact of Commodities (goods, not energy) can be seen in the chart clearly.

Missing from this picture is the massive increase in housing prices and the collapse in rents last year followed by an even stronger rebound this year. As alluded to previously, Owners Equivalent Rent was specifically instituted in the 1990s to mask large increases in housing costs.

Figure: 7 Historical CPI

The historical weightings show that there is not much change over time across categories. It also shows the massive weighting given to Shelter which is why Owners Equivalent Rent has had such a strong impact on anchoring reported inflation.

Figure: 8 CPI Weighting

What it means for Gold and Silver

CPI data has become quite a paradox for Gold and Silver. High readings have been putting downward pressure on prices where lower readings tend to support the price levels. However, last week’s job report combined with the price action today (gold touched $1870 before coming down to $1855) may be changing the narrative. Has the market finally started to believe the Fed that they have zero intention of raising rates? Or maybe investors have just done the simple math that shows how devastating rate increases would be on the Federal deficit.

Regardless, precious metals are not out of the woods. They have many resistance hurdles to overcome before a real breakout happens. $1800 and $1835 have both fallen quickly (for now). Consolidation between $1850-$1900 seems likely, but again maybe the market actually sees the full picture finally. Or perhaps Biden will choose to nominate Brainard and remove Powell at the Fed. Brainard makes Powell look like a hawk and has major social agendas to address. This can only be done with more money printing and lower rates.

Gold and silver had been looking for a breakout of the tight range for some time. All the signs pointed up. The breakout has been confirmed. Now both metals need to consolidate and then build upon gains.

Data Source: and

Data Updated: Monthly within first 10 business days

Last Updated: Oct 2021

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