August CPI: Sharp gains in housing and new cars offset declines in used cars and gasoline

– by a New Deal Democrat

Following on from yesterday’s post, let’s get to the point:

Overall CPI +0.1%

Energy -5.0%

Used cars -0.1%

New vehicles +0.8%

Equivalent rent to owners +0.7% (biggest monthly gain since 1990)

Annual inflation eased to +8.3% from its recent peak of +9.0%:

The 0.7% increase in owner-equivalent rent was the largest monthly increase since 1990. The annualized OER increased to 6.3%, the highest since the series began in 1984, except for two months in 1986. Here it is annualized compared to the FHFA home price index (/2 for scale) since the last series began in 1993:

OER lags house prices by 12-18 months. House price appreciation peaked in June 2021, so we should be approaching a peak in OER as well, but if it rises in proportion to house prices, as happened in the housing bubble of 2000, it could continued to rise to 7.5% or 8% before falling. And since OER plus rents (which also rose 0.7% for the month) account for 40% of core inflation, it would take an absolute drop in everything else in the core measure just to get below a 0.4 increase % per month (compared to 0.6% in August).

And new vehicle prices didn’t help at all. Although their year-over-year increases are down from their peak, they are still up 10.4% year-over-year. Used vehicle prices are up 7.8% year over year and have stopped slowing over the past few months:

The only upside here is that used vehicle prices haven’t risen at all since last December (although that’s a level that’s 50% higher than when the pandemic hit):

As expected, energy prices fell even more in August than in July. Year-over-year energy is up 23.9% (but well below its peak earlier this year):

Energy prices are still up 9.4% since February, just before the invasion of Ukraine:

Essentially, inflation at this point is primarily a function of the dummy and lagged measure of housing used by the Census Bureau (given that home price indexes are still up more than 15% year-over-year, although they can be shown to have peaked in the summer), plus the shortage of computer chips for vehicle production.

Let’s finally update real wages. They rose 0.2% in August. But that didn’t do much to offset their decline since late 2021. Year-to-date, they’re down -2.2%:

To re-emphasize, this loss is mainly related to housing, plus new car supply issues and the crucial spike in petrol prices since the invasion of Ukraine.

I’m going to make a point that I think is pretty out of the mainstream at this point: As long as mortgage rates stay at 5% or higher, there’s no reason for the Fed to raise rates any further. He is chasing a horse that is 3 counties from the stable and has stopped running.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *