NAA Inflation Tracker: April 2023
CPI, Latest Release, March 2023
Inflation surprised on the upside, accelerating at rates below the consensus forecast. On a monthly basis, headline CPI rose just 0.1%, and increased 5.0% annually, the slowest pace since May 2021. Prices excluding food and energy remained stubbornly sticky and ticked up slightly to 5.6%, due largely to shelter costs. Prices for car insurance, airline fares, household furnishings and new vehicles all increased in March while costs for medical care and used cars and trucks declined.
CPI for Housing, March 2023
The CPI includes two measures for shelter costs: owners’ equivalent rent and rent of primary residence, both of which are self-reported. Together, they comprise about one-third of CPI. March 2023 may finally mark the peak of shelter costs. For the first time in 19 months, shelter costs were stable, with an 8.8% increase in rent and an 8.0% increase in owners' equivalent rent, matching last month’s rates. Rent costs are expected to decelerate in the coming months, lagging private sector data trends which began in Q3 2022.
“Super Core” Inflation, March 2023
Due to these lags in CPI shelter data, the Fed has begun to focus more on “super core” inflation, that is prices excluding food, energy and shelter. This measure was stagnant in March, increasing 3.7% year-over- year. In addition to the aforementioned core categories experiencing increases, prices for household goods, tools and outdoor equipment, pet products and delivery services continued to surge at double-digit rates.
Inflation Expectations, March 2023
The Fed tracks 21 different measures of inflation expectations. The data presented in the chart below are inflation expectations one year from now from the Federal Reserve Bank of New York’s Survey of Consumer Expectations and the University of Michigan’s Consumer Sentiment Index.
The surveys were widely divergent in March, with the Michigan survey dropping to 3.6%, its lowest level since April 2021, while the Fed’s survey increased to 4.7%, reversing a 4-month downward trend. Consumers answering the Fed’s survey expect prices for food, gas, medical care and rent to decline one year from now, while expectations for tuition and home prices increased. Credit access perceptions and expectations also weighed on consumer sentiment.
Wage Growth, March 2023
Wage growth, as measured by average hourly earnings, increased 4.2% year-over-year, the lowest 12-month increase since June 2021. The leisure and hospitality sector continued to post the highest gains at 6.1%, followed by utilities and information at 5.5%. Cooling wage growth is a good sign for the Fed, and while several recently released labor market indicators showed some signs of slowing as well, it remains strong enough for the Fed to keep monetary policy tight.
What to Watch in the Next Month
- Central Banks across the globe continue to raise interest rates, despite the financial unrest caused by bank failures. The International Monetary Fund (IMF) recently decreased its global growth forecast and is encouraging Central Banks to continue their quests to bring down inflation.
- The Federal Open Market Committee’s next meeting is May 2-3. Many analysts feel another rate hike is in the cards, but it’s important to remember that the recent bank failures had similar impacts to rate increases, that is tamping down spending and investment. According to an analysis by Moody’s Analytics, the banking crisis was equivalent to a 50- to 75-basis point increase in the Federal Funds Rate.
Next Tracker: May 10, 2023