– by a New Deal Democrat
What difference does it make that PPI has no concept of “equivalent owner rent!”
Overall PPI fell -0.1%, after reading -0.4% in July, together the two lowest readings since the pandemic lockdown months:
Core PPI increased 0.5% (blue in chart below), which, while historically high, was the lowest reading in 16 months excluding last August, in contrast to the continued rise in core CPI ( gold):
Note that the core PPI has been slowing since April.
The main housing component of the PPI is housing construction materials. Here are the absolute values in both variations of this reading:
Note that both have decreased over the past few months, with building materials almost unchanged throughout the year. Here’s what the year-over-year changes look like in each:
Both are still very elevated, but at least building materials are down from the stratosphere to the limits of high readings of the previous 20 years.
Now let’s compare owner-equivalent rent (black) to the Case Shiller housing index (blue) and the PPI for housing materials (red):
Although there is no close historical relationship between the price of building materials and the housing price index, since the pandemic they have moved in tandem, both rising sharply and then plateauing almost simultaneously. Since home price indices are only reported in June, we don’t yet know if they will follow the sharp year-over-year slowdown already evident in construction materials spending (but I strongly suspect they will).
In other words, there is every reason to believe that both core and headline PPI will continue to decelerate even as owner-occupier equivalent rent pulls core CPI up.
Unfortunately, the lingering OER phantom will almost certainly cause the Fed to continue to pump the brakes.