The economy is heading towards the sweet spot for the consumer as gas prices are declining and wage growth is accelerating. Real hourly wage growth was 0.7% in October. This improvement in the health of the consumer explains why Wal-Mart had same-store sales growth of 3.4% in Q3 which beat estimates for 3.1%. The firm raised full-year same-store sales growth guidance from “about 3% growth” to “at least 3% growth.” Wal-Mart expects a strong holiday season from the consumer.
In this article, we’ll discuss the October CPI report. It looks like core inflation may be peaking. Month over month headline CPI growth was 0.3% which met estimates and was above the 0.1% growth in September. The Bloomberg chart below shows year over year inflation accelerated from 2.3% to 2.5% which met estimates.
Source: chart
Energy drove the difference between headline inflation and core inflation. On a month over month basis, energy was up 2.4% and gas was up 3%. On a year over year basis, energy was up 8.9%. That won’t be the case in November as oil prices have plummeted. Headline inflation should fall, all else being equal.
Without food and energy, CPI was 0.2% month over month which met estimates and was up from 0.1% last month. Year over year core inflation decelerated from 2.2% to 2.1% which missed estimates for 2.2%. That occurred because last year core inflation increased from September to October. The comparison gets easier in November and then progressively harder in the following months. Food inflation remained very low as it was down 0.1% month over month and up 1.2% year over year. Medical services inflation was up 0.2% month over month and 1.9% year over year. Physician and hospital services were flat monthly. New vehicle prices were down 0.2% monthly for the second straight decline, while used car prices were up 2.6% after falling 3% monthly.
Future Expectations For Inflation & Wages
Because oil prices prevented real wage growth from spiking, October real wage growth was just the beginning of what is to come. As you can see from the chart on the right, Nordea’s leading wage indicator, which has a good track record, shows the ECI wages and salaries index for private workers should accelerate to 3.5% growth next year.
