Inflation Shifts to Slowest Pace Since January

2022-11-10T11:17:45-06:00

Consumer prices in October saw the smallest year-over-year gain since January 2022, and while still elevated, inflation experienced the first month below an 8% annual growth rate since February 2022. However, the shelter index continued to rise at an accelerated pace and the energy index increased after declining for three straight months. As inflation appears to have peaked and has started to slow, this may ease some of pressure on the Fed to maintain its aggressive monetary policy. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.4% in October on a seasonally adjusted basis, following the same increase in September. The price index for a broad set of energy sources rose by 1.8% in October as a decline in natural gas (-4.6%) partly offset an increase in electricity (+0.1%) and gasoline index (+4.0%). Excluding the volatile food and energy components, the “core” CPI increased by 0.3% in October, following an increase of 0.6% in September. Meanwhile, the food index increased by 0.6% in October with the food at home index rising 0.4%. Most component indexes continued to increase in October. The indexes for shelter (+0.8%), motor vehicle insurance (+1.7%), recreation (+0.7%), new vehicles (+0.4%) as well as personal care (+0.5%) showed sizeable monthly increases in October. Meanwhile, the indexes for used cars and trucks (-2.4%), apparel (-0.7%), medical care (-0.5%) and airline fares (-1.1%) declined in October. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.8% in October, following an increase of 0.7% in September. This is the largest monthly increase since August 1990. The indexes for owners’ equivalent rent (OER) increased by 0.6% and rent of primary residence (RPR) increased by 0.7% over the month. Monthly increases in OER have averaged 0.7% over the last three months. More cost increases are coming from this category, which will maintain pressure on inflationary forces in the months ahead. These higher costs are driven by lack of supply and higher development costs. Higher interest rates will not slow these costs, which means the Fed’s tools are limited in addressing shelter inflation. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 7.7% in October, following an 8.2% increase in September. The “core” CPI increased by 6.3% over the past twelve months, following a 6.6% increase in September. The food index rose by 10.9% and the energy index climbed by 17.6% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.4% in October. Over the first ten months of 2022, the monthly change of the Real Rent Index increased by 0.1%, on average. Related ‹ Unsurprisingly, Housing Affordability Continues to FallTags: cpi, inflation, monetary policy

Inflation Shifts to Slowest Pace Since January2022-11-10T11:17:45-06:00

Inflation Remains Stubbornly High Despite Fed Rate Hikes

2022-10-13T12:20:18-05:00

Consumer prices eased in September for the third-straight month as declines in energy prices partly offset increases in food and shelter indexes. Despite this slight improvement, inflation remains above an 8% year-over-year rate for the seven straight month. The food and shelter indexes continued to rise at an accelerated pace, with the owners’ equivalent rent index seeing the largest monthly increase since June 1990. Though it is likely that both core PCE and CPI measures of inflation have peaked, the Fed is expected to remain aggressive with respect to tightening monetary policy. It is also worth noting that higher interest rates will have limited effects on rising rent (a function of a lack of attainable housing) or the ongoing labor shortage. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.4% in September on a seasonally adjusted basis, following an increase of 0.1% in August. The price index for a broad set of energy sources fell by 2.1% in September as a decline in gasoline (-4.9%) partly offset an increase in electricity (+0.4%) and natural gas index (+2.9%). Excluding the volatile food and energy components, the “core” CPI increased by 0.6% in September, as it did in August. Meanwhile, the food index increased by 0.8% in September, the same increase as August. Most component indexes continued to increase in September. The indexes for shelter (+0.7%), medical care (+0.8%), motor vehicle insurance (+1.6%), household furnishings and operations (+0.5%) as well as education (+0.4%) showed sizeable monthly increases in September. Meanwhile, the indexes for used cars and trucks (-1.1%), apparel (-0.3%) and communication (-0.1%) declined in September. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.6% in September, following an identical increase in August. The indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) both increased by 0.8% over the month. Monthly increases in OER have averaged 0.7% over the last three months. More cost increases are coming from this category, which will add to inflationary forces in the months ahead. These higher costs are driven by lack of supply and higher development costs. Higher interest rates will not slow these costs, which means the Fed’s tools are limited in addressing shelter inflation. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 8.2% in September, following an 8.3% increase in August. The “core” CPI increased by 6.6% over the past twelve months, following an 6.3% increase in August. The food index rose by 11.2% and the energy index climbed by 19.8% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.3% in September. Over the first nine months of 2022, the monthly change of the Real Rent Index increased by 0.1%, on average. Related ‹ Remodeling Market Sentiment Softened in Third Quarter, But Remains PositiveTags: cpi, inflation, monetary policy, owners’ equivalent rent

Inflation Remains Stubbornly High Despite Fed Rate Hikes2022-10-13T12:20:18-05:00

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