Inflation continues to decelerate rapidly
24 April 2023 Following the latest CPI and PPI data, it seems even more clear that inflation mostly peaked around June/July last year and has been easing since, particularly in the last six months. This note follows up on the comments I made back in December, highlighting the influence of shelter costs and the Fed’s […]
Divergent shelter costs are muddying the inflation debate
A key topic within the broader inflation debate is the influence of the biggest single component of the CPI: shelter. At about 33% of the current CPI weight, shelter (housing/rent) costs are clearly important, but measuring them is harder than it might seem.
Inflation in goods is already over
The focus of the inflation headlines, and most of the comments from Fed officials, has been on the year-on-year reported inflation rate of the CPI (or PCE). However, the extremely volatile macro environment has produced far more volatility in reported inflation data than has been seen for most of the last 30 years.
CPI remains high, but commodity prices stabilizing
The latest CPI report yesterday showed prices in April still rising at a worrisome rate, led by recovery in service-related spending like airline fares. The monthly increases in the headline CPI and the core (excluding food and energy) rate were both above consensus expectations.
Notably, the core rate (+0.6%) rose substantially more than the headline rate (+0.3%), as the impact of food and energy was negative in April. However, the year-on-year increase in the headline CPI, which eased slightly to 8.3%, is still substantially higher than the core rate of 6.2%.
Inflation trend is still low
One of the biggest topics among investors recently has been inflation, particularly after the May Consumer Price Index (CPI) and Producer Price Index (PPI) reports (reflecting April data) that showed big monthly jumps in headline inflation: 0.8% for headline CPI and 0.6% for headline PPI. And the “core” rates that exclude food and energy were actually slightly higher than the headline rates in April.
Used cars in the headlights
According to the latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics, “the index for used cars and trucks rose 10.0 percent in April. This was the largest 1-month increase since the series began in 1953, and it accounted for over a third of the seasonally adjusted all items increase.”
Wow. That’s a big increase in used car prices, and a large influence for something that only makes up 2.7% of the overall CPI basket.