NAA Inflation Tracker: September 2024

CPI, Latest Release, August 2024  

Outside of core inflation ticking up slightly, there were no big surprises in the August CPI report. The headline index increased 2.6% year-over-year on a seasonally adjusted basis while prices excluding food and energy rose 3.3%. The headline figure was the lowest in more than 3 years, driven largely by a 10.3% plunge in gas prices and a similar decline in prices for used cars and trucks. Transportation services costs, up 7.9% and shelter costs, increasing 5.2%, are preventing CPI from getting closer to the Fed’s 2% target.

CPI for Housing, August 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. Both measures have been mostly decelerating for the past 17 months, however OER ticked up to 5.4% year-over-year in August, while rent fell slightly to 5.0% from 5.1% last month.

Private sector data for rent prices in August ranged from a 0.8% increase year-over-year (Yardi Matrix) to a 0.7% decline (Apartment List) with RealPage reporting a 0.4% rise. All three data providers show flat to mildly negative growth month-over-month. 

Super Core Inflation, August 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 came in at 1.6% year-over-year, its lowest level since March 2021, and 0.1% month-over-month.  Declines in used cars and trucks (-2.3%), apparel (-0.4%) and medical care (-0.3%) were not enough to offset the increases in airline fares (3.9%) and car repairs (1.4%).

Inflation Expectations, August 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 drifted down to 2.8%, its lowest level since the end of 2020 and well within pre-pandemic norms.  The Fed index has been stagnant for the past 3 months at 3.0%. Consumers expect price increases to decelerate over the next year for food and college tuition, but to accelerate for gas, rent and medical care. 

Wage Growth, August 2024

Wage growth, as measured by average hourly earnings, ticked back up to 3.8% year-over-year after hitting a 3-year low last month. The financial activities sector, including real estate, continues to have one of the highest growth rates at 4.6%. However, on a monthly basis, wage growth in this sector has been trailing the national average for the past six months, a potential sign of cooling in the coming months.  

What to Watch in the Next Month 

• The Federal Open Market Committee meets on September 17th and 18th and will update its economic projections, which will include forecasts for inflation, the labor market and interest rates. 
• According to the CME FedWatch tool, today’s inflation report all but assures a quarter-point rate decrease at the Fed’s September meeting, but markets are still pricing in a cumulative cut of 100 basis points by the end of the year. 

Next Tracker: October 10, 2024