NAA Inflation Tracker: August 2024
CPI, Latest Release, July 2024
The Consumer Price Index for July came in largely as expected. The headline number dropped below 3.0% for the first time since March 2021. Excluding food & energy, prices were up 3.2% from a year ago, continuing their slow deceleration. On a monthly basis, both measures increased by 0.2%, higher than the previous month. Contributing to price increases in the all-items index this month were fuel oil (0.9%) and fruits and vegetables (0.8%). On the core side, car insurance and shelter costs increased by 1.2% and 0.4%, respectively. Shelter costs were responsible for nearly 90% of the headline increase in CPI.
CPI for Housing, July 2024
The CPI includes two measures for shelter costs: owners’ equivalent rent (OER) and rent of primary residence, both of which are self-reported. Together, they comprise about one-third of CPI. OER continued to decelerate but rent of primary residence stalled at 5.1% growth year-over-year. Both rent and OER increased 0.4% over the month, remaining highly elevated.
The New Tenant Rent Index, which calculates prices renters would face if they changed housing units every period, was released by the Bureau of Labor Statistics in July for Q2 2024. It revealed a 1.2% quarter-over-quarter decline in rents, with the decrease from a year ago nearly matching at 1.1%, a steeper drop than any private sector data.
Super Core Inflation, July 2024
Due mainly to lags in CPI shelter data, the Fed has begun to focus more on “super core” inflation, that is, prices excluding food, energy and shelter. Super core inflation increased 1.7% year-over-year, its lowest level since March 2021. Prices fell 0.2% from the prior month on an unadjusted basis, driven by used cars and trucks (-2.3%) and airline fares, which declined by 1.6%.
Inflation Expectations, July 2024
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 Michigan index fell for the second straight month, and at 2.9% is in the 2.3%-3.0% range of 2017-2019. The Fed index remained unchanged at 3.0%. Consumers expect price increases to decelerate for gas and food, but to accelerate for medical care, college tuition and rent.
Wage Growth vs. Employment Cost Index, Q2 2024
The Employment Cost Index (ECI) is a quarterly measure of the change in the costs of labor. Unlike average hourly earnings, the series typically used for wage growth, the ECI calculation is not impacted by the change in employment levels among occupations and industries which can significantly skew wage levels. It also includes the costs of benefits to employers. The ECI is considered a purer measure of labor costs and is closely watched by the Fed.
Quarterly wage growth dipped below 4.0% for the first time in three years, while the Employment Cost Index dropped to 4.1% year-over-year, its lowest level since Q4 2021. Both measures remain well above the 5-year pre-pandemic averages of 2.7% and 2.5%, respectively.
What to Watch in the Next Month
This month’s CPI reading, along with producer prices also showing signs of cooling this month, will keep the Fed more focused on upcoming labor market indicators. The Fed seems all but certain to start a rate-cutting cycle at its next meeting in September. The CME Fed Watch tool now predicts a full percentage point rate cut by the end of the year, but the Fed itself is showing just one quarter-point at this time. These projections will be updated, however, at the September meeting.
Next Tracker: September 11, 2024