Inflation watch? Other than eggs and fruits, not much to worry about.

After a few months of good news on the inflation front, and with the Federal Reserve beginning to cut rates from multi-year highs, this week gave us a chance to see if the momentum continued in September with the release of new a new report on the Consumer Price Index.

My favorite thing about the inflation report is that it's become boring again.

Headline CPI rose 0.2% in September, and 2.4% over the year. In English, that's: Back to normal, low, and dull.

Core CPI rose 0.3% last month, up 3.3% over the year, and is still trending down. pic.twitter.com/vXzHXfNYC9

— Justin Wolfers (@JustinWolfers) October 10, 2024

Inflation continues to trend down. 2.4% (y/y) in September is the lowest since February 2021.

The forecast was for 2.3%. Inflation came in a bit higher due mainly to food prices (grocery +0.4% in Sept. and restaurant +0.3%). That's definitely worth watching, but the general… pic.twitter.com/SFydqvfgHC

— Heather Long (@byHeatherLong) October 10, 2024

A 0.3% increase in "core" inflation (i.e., without food or energy) isn’t great, but it was nice to see the rise in shelter to only be 0.2% for the second time in 4 months. It was rises in clothing (+1.1%), medical services (+0.7%) and transportation services (+1.4%) that got the overall core index higher than expected.

That’s not a big deal in the overall picture, but something I did notice was the 0.4% increase in food at home (generally groceries), which is the biggest 1-month jump in that category since companies re-set their prices for 2024 in January. And 2/3 of that increase in groceries came down to 2 items.

Eggs +8.4%
Fresh fruits +2.2%

Most everything else was tepid when it came to price increases, so that feels like things are still generally under control.

But what’s up with those egg prices, which are now up nearly 40% in the last year?

More than 100 million “wild aquatic birds, commercial poultry and backyard or hobbyist flocks” have been infected with bird flu since January 2022, according to the CDC.

Prices have spiked in recent weeks due to a large bird flu outbreak at two Colorado chicken farms in July. That, paired with higher consumer demand, is contributing to the sticker shock many Americans may be experiencing in the aisles, experts say.

More than 50 million birds died in the 2014-2015 outbreak, while more than 100 million birds have died since the outbreak that started in 2022. It has become the most deadly HPAI outbreak in history.

Amy Hagerman, an associate professor of agricultural economics at Oklahoma State University, says table egg-laying chickens seem particularly susceptible to HPAI, likely because the virus can spread quickly in their close quarters.

“Table egg-layer facilities tend to be very large, and so you can lose a million or 2 million birds on a single facility, because this is a highly contagious virus,” she says.

So the price spike in eggs isn’t anything that relates to economic policy here, unless you want more sick chickens and your store’s eggs becoming more (shall we say) high-risk?

Other good news is that September's increase in average hourly wages beat the CPI for the 5th straight month, and is up by 1.5% vs inflation on a year-over-year basis.

Here's another key chart: Inflation-adjusted wages.

Average hourly wage gains in past year: 4%
Inflation in past year: 2.4%

Wages have grown faster than inflation for 17 months now. That's helping people get ahead now. pic.twitter.com/EPZhnM4YUW

— Heather Long (@byHeatherLong) October 10, 2024

I also remembered Fed officials mentioning that a tepid reading for August in the Producer Price Index was a big reason why what they chose a larger interest rate cut last month. So let’s see what the newest PPI report portends for future inflation.

The Producer Price Index for final demand was unchanged in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.2 percent in August and were unchanged in July. On an unadjusted basis, the index for final demand rose 1.8 percent for the 12 months ended in September.

Within final demand in September, a 0.2-percent increase in the index for final demand services offset a 0.2-percent decline in prices for final demand goods.

The index for final demand less foods, energy, and trade services inched up 0.1 percent in September after rising 0.2 percent in August. For the 12 months ended in September, prices for final demand less foods, energy, and trade services increased 3.2 percent.

Not bad, and when you look further up the chain, the three steps closest to the source all had price drops in September.

The only item in that PPI report that worries me is the 1.0% increase in the final demand stage for foods. Much like the CPI report, this seems to be heavily concentrated into few areas - fresh fruits (+8.3%), processed chickens (+9.9%), grains (+4.8%), and dairy products (+1.5%). I also note that while eggs had a PPI decline of -6.2% in September, but that's little comfort after a 56% increase in June and 55% increase in August.

But overall, I don’t see widespread inflation firing back up over the coming months, because most other sectors are seeing flat or even declining prices. Well, outside of profiteering or other manipulations, of course.