NAA Inflation Tracker: September 2023
CPI, Latest Release, August 2023
The August inflation release contained more positives than negatives and largely came in at expectations. The headline number increased, as anticipated, for the second month in a row due to a rise in gas prices, responsible for more than half of the total CPI increase. The 0.6% monthly escalation was the highest since June 2022. Core CPI, excluding food and energy prices, was at its lowest level in nearly two years, up 4.4% year-over-year and 0.3% month-over-month, seasonally adjusted.
CPI for Housing, August 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. Shelter cost increases have decelerated for four consecutive months. Rent growth has slowed faster since peaking earlier this year, falling 106 basis points compared to a 79-basis point decrease in owners’ equivalent rent. Monthly growth has been in the 0.4%-0.5% range for six months but needs to get down to 0.3% to be in line with pre-pandemic averages.
“Super Core” Inflation, August 2023
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 measured 2.2% year-over-year, again a low not seen since March 2021. Prices rose this month, however, at a 0.3% pace, driven by window coverings (6.8%), airline fares (4.9%) and public transportation (3.9%) as energy prices impacted non-energy categories of the index.
Inflation Expectations, August 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 Fed’s gauge ticked up in August while the University of Michigan’s has increased slightly for two months in a row, neither of which is surprising given a 10.6% monthly surge in gas prices. Households were less optimistic about their financial situations, according to the Fed survey. The good news is longer-run inflation expectations were stable in both reports.
Wage Growth, August 2023
Wage growth, as measured by average hourly earnings, remained elevated at 4.3% year-over-year, but cooled on a monthly basis, rising just 0.2%, the lowest level since February 2022. The largest monthly gain occurred in the financial activities sector, which includes real estate, up 1.1% this month and 5.6% year-over-year. Transportation and warehousing posted a 0.5% increase in August while those working in the mining, utilities, durable goods and professional services sectors saw monthly declines. Real earnings, which take inflation into account, for private sector workers fell by 0.5% in August.
What to Watch in the Next Month
The Federal Open Market Committee meets on September 19-20 and is expected to leave interest rates at current levels. Economic projections will also be updated at this meeting and should provide clues as to whether the Fed may make another rate hike this year.
Next Tracker: October 12, 2023