U.S. Inflation Rate: Overview and Breakdown

U.S. Inflation Rate

Inflation is the rate of increase in the price of goods and services over a period of time. The most widely used measure of inflation is the percentage change in the consumer price index (CPI) over a certain period (usually a year), where the CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

GuruFocus uses "Consumer Price Index for All Urban Consumers: All Items in U.S. City Average" as the CPI data to calculate U.S. inflation rate. In October 2024, the annual inflation rate in the U.S. was 2.6% before seasonal adjustment over the last 12 months, slightly rising from 2.44% in September 2024. Still, it was the highest reading since July 2024.

Statistically, we can see the current (October 2024) annual inflation rate of 2.6% in the U.S. is lower than the latest 20-year average of 2.59%, plus one standard deviation of 1.94%. Over the last 20 years, the annual U.S. inflation rate peaked at 9.06% in June 2022, which indicates the lowest purchasing power of the U.S. dollar. The lowest inflation rate of -2.1% occurred in July 2009, which indicates the highest purchasing power.

U.S. Core Inflation Rate

GuruFocus uses "Consumer Price Index for All Urban Consumers: All Items Less Food and Energy" as the core CPI data to calculate U.S. core inflation rate. In October 2024, the annual core inflation rate in the U.S. was 3.33% before seasonal adjustment over the last 12 months, slightly rising from 3.31% in September 2024. Still, it was the highest core inflation reading since May 2024.

Statistically, we can see the current (October 2024) annual core inflation rate of 3.33% in the U.S. is lower than the latest 20-year average of 2.45%, plus one standard deviation of 1.24%. Over the last 20 years, the annual U.S. core inflation rate peaked at 6.63% in September 2022, which indicates the lowest purchasing power of the U.S. dollar. The lowest core inflation rate of 0.61% occurred in October 2010, which indicates the highest purchasing power.

From the two U.S. inflation charts, we can see the inflation rate is positive for most of the year, which means the overall price of goods and services has increased over time. This also indicates a loss of purchasing power, i.e. a unit of money buys fewer goods and services. In economics, deflation is a decline in the general price level of goods and services that occurs when the inflation rate falls below 0%.

Although high inflation hurts an economy, deflation, or falling prices, is also undesirable. When prices fall, consumers delay purchases in anticipation of lower prices in the future, which means less economic activity, less income for producers and less economic growth for the economy. The chart shows that deflation has been associated with recessions in the U.S., and that the most severe deflation occurred immediately after the 2008 financial crisis. Most economists now agree that low, stable and, most importantly, predictable inflation is good for the economy.

Major Contributors to U.S. Inflation

A closer look at inflation by component provides a more detailed picture of inflation.

There are two classification methods for the CPI. For analytical purposes, the CPI can be divided into three groups: food, energy, and all items less food and energy. Another way is to arrange different expenditure items into 8 major groups, including food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.

The charts below show the contribution of each component of the CPI to inflation. Each component's contribution to total annual inflation depends on its weight in the consumption basket and its own inflation rate. The weight is an estimate of how consumers would allocate their spending as prices change over time and is expressed as a percentage of all items within a sector.

Core Inflation and CPI Breakdown

The CPI for all items less food and energy gets considerable attention as a measure of underlying core inflation, which is not subject to the volatile movements of food and energy prices. Among the three components, the contribution of each component in descending order is listed as US Core CPI (101.92%), Food (11.15%), and Energy (-13.08%).

Table: Percent changes in CPI for All Urban Consumers (CPI-U): U.S. city average (Unadjusted)

Overall, comparing with the latest (October 2024) annual inflation rate in the U.S. with the previous month-end (September 2024) annual inflation rate, a slowdown was seen in Food prices (2.13% vs 2.27%). In contrast, there were increases in the cost of US Core CPI (3.33% vs 3.31%), and Energy (-4.86% vs -6.85%).

• US Core CPI: In October 2024, the US Core CPI index rose 0.20% over the month. Additionally, the index for US Core CPI increased 3.33% over the past 12 months.
• Food: In October 2024, the Food index rose 0.18% over the month. Additionally, the index for Food increased 2.13% over the past 12 months.
• Energy: In October 2024, the Energy index fell 1.06% over the month. Additionally, the index for Energy decreased 4.86% over the past 12 months.

8 Major Expenditure Groups Inflation and CPI Breakdown

Based on the eight major groups of expenditures in the CPI, the U.S. inflation rate can be broken down into eight major components. Among all the components, the largest contributor to the annual inflation rate in the U.S. is Housing, which accounts for about 71.81% of total inflation as of October 2024, while the smallest contributor is Transportation, which accounts for only -1.54% of the total. Apart from these, the contribution of each component in descending order is listed as Food and Beverages (11.58%), Medical Care (10.04%), Other Goods and Services (3.86%), Recreation (1.93%), Education and Communication (1.93%), and Apparel (0.39%).

Table: Percent changes in CPI for All Urban Consumers (CPI-U): U.S. city average (Unadjusted)

Overall, comparing with the latest (October 2024) annual inflation rate in the U.S. with the previous month-end (September 2024) annual inflation rate, a slowdown was seen in Food and Beverages prices (2.10% vs 2.22%), Apparel prices (0.30% vs 1.79%), Education and Communication prices (0.80% vs 0.91%), and Other Goods and Services prices (3.29% vs 3.55%). In contrast, there were increases in the cost of Housing (4.17% vs 4.08%), Transportation (-0.11% vs -1.07%), Medical Care (3.29% vs 3.25%), and Recreation (1.02% vs 0.71%).

• Food and Beverages: In October 2024, the Food and Beverages index rose 0.19% over the month. Additionally, the index for Food and Beverages increased 2.10% over the past 12 months.
• Housing: In October 2024, the Housing index rose 0.21% over the month. Additionally, the index for Housing increased 4.17% over the past 12 months.
• Apparel: In October 2024, the Apparel index fell 1.74% over the month. Additionally, the index for Apparel increased 0.30% over the past 12 months.
• Transportation: In October 2024, the Transportation index rose 0.04% over the month. Additionally, the index for Transportation decreased 0.11% over the past 12 months.
• Medical Care: In October 2024, the Medical Care index rose 0.28% over the month. Additionally, the index for Medical Care increased 3.29% over the past 12 months.
• Recreation: In October 2024, the Recreation index rose 0.34% over the month. Additionally, the index for Recreation increased 1.02% over the past 12 months.
• Education and Communication: In October 2024, the Education and Communication index fell 0.32% over the month. Additionally, the index for Education and Communication increased 0.80% over the past 12 months.
• Other Goods and Services: In October 2024, the Other Goods and Services index rose 0.39% over the month. Additionally, the index for Other Goods and Services increased 3.29% over the past 12 months.