AFMC - CPI Ex-Shelter Is 2.0%
2023-10-12 21:30:00 ET
Summary
- On a year-over-year basis, the CPI is up 3.7%. Excluding shelter costs, which we know are artificially inflated by BLS methodology, the CPI is up only 2.0%.
- It is not unreasonable to think that the Fed has successfully arrested the inflation that was caused by $6 trillion of federal deficit spending in 2020 and 2021.
- The CPI including all prices rose 3.7% in the past 12 months, but excluding just one category - shelter costs, which are heavily influenced by housing prices 18 months prior - the CPI was up only 2.0%.
On a year-over-year basis, the CPI is up 3.7%. Excluding shelter costs, which we know are artificially inflated by BLS methodology, the CPI is up only 2.0%.
It is not unreasonable to think that the Fed has successfully arrested the inflation that was caused by $6 trillion of federal deficit spending in 2020 and 2021 . Mission accomplished. No more rate hikes are needed.
Chart #1
Chart #1 compares the year-over-year change in the CPI index (blue line) and the CPI index less shelter costs (red). The CPI including all prices rose 3.7% in the past 12 months, but excluding just one category - shelter costs, which are heavily influenced by housing prices 18 months prior - the CPI was up only 2.0%.
Chart #2
Chart #2 shows how BLS methodology effectively uses changes in housing prices 18 months prior (blue line) to drive the Owner's Equivalent Rent component of the CPI, which makes up about one-third of the CPI.
Housing prices and rents stopped rising over a year ago, but the BLS is assuming that shelter costs are still rising at a 7% annual rate, thus artificially boosting the overall CPI.
For the next six to nine months, the BLS-calculated increase in shelter costs will be dropping significantly, and that will meaningfully reduce the shelter contribution to the CPI.
Meanwhile, the CPI has received a boost from rising gasoline prices in August and September, and a lot of that boost will reverse in coming months, since nationwide gasoline prices have fallen in the past several weeks.
In short, expect measured inflation to remain low for the foreseeable future. Low enough to keep the Fed from raising short-term interests rates further than they already have.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
CPI Ex-Shelter Is 2.0%