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Consumer Price Index: Difference between revisions
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''Main article: [[Consumer Price Index:Historical Releases]]'' | ''Main article: [[Consumer Price Index:Historical Releases]]'' | ||
''Latest release: [[Consumer Price Index:Historical Releases/ | ''Latest release: [[Consumer Price Index:Historical Releases/2023 January]]'' | ||
CPI declined 0.1 percent in December on a seasonally adjusted basis, after increasing 0.1 percent in November, over the last 12 months, the all items index increased 6.5 percent. Excluding volatile food and energy prices, core CPI rose 0.3%. Core was up 5.7% from a year ago. | CPI declined 0.1 percent in December on a seasonally adjusted basis, after increasing 0.1 percent in November, over the last 12 months, the all items index increased 6.5 percent. Excluding volatile food and energy prices, core CPI rose 0.3%. Core was up 5.7% from a year ago. | ||
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The index for gasoline was by far the largest contributor to the monthly all-items decrease, more than offsetting increases in shelter indexes. However, shelter CPI remained elevated driving core CPI up, and its not expected to decline until the second half 2023. | The index for gasoline was by far the largest contributor to the monthly all-items decrease, more than offsetting increases in shelter indexes. However, shelter CPI remained elevated driving core CPI up, and its not expected to decline until the second half 2023. | ||
=== Recent Inflation History=== | ===Recent Inflation History=== | ||
{| class="wikitable" | {| class="wikitable" | ||
|'''Release Date''' | |'''Release Date''' | ||
| Line 167: | Line 167: | ||
|} | |} | ||
== Weighing of CPI components == | ==Weighing of CPI components== | ||
{| class="wikitable" | {| class="wikitable" | ||
|'''Item''' | |'''Item''' | ||
|'''Weight''' | |'''Weight''' | ||
|- | |- | ||
|Food | |Food | ||
|'''13.781''' | |'''13.781''' | ||
|- | |- | ||
| Line 229: | Line 229: | ||
|5.316 | |5.316 | ||
|- | |- | ||
| | | - Other services | ||
|2.182 | |2.182 | ||
|} | |} | ||
== Near-term inflation drivers == | ==Near-term inflation drivers== | ||
Near-term inflation is still in line with a continued decline in inflation in the coming months. | Near-term inflation is still in line with a continued decline in inflation in the coming months. | ||
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Another significant risk to the upside in short term will be China's reopening, especially on energy and other commodity prices. | Another significant risk to the upside in short term will be China's reopening, especially on energy and other commodity prices. | ||
=== . Wages === | ===. Wages=== | ||
The labor market is still resilient, and wages are still above average, due to this we can still expect pressure to the upside in CPI in the coming months, especially in the service sector.<ref>https://tradingeconomics.com/united-states/wage-growth#:~:text=Wage%20Growth%20in%20the%20United,percent%20in%20March%20of%202009</ref> | The labor market is still resilient, and wages are still above average, due to this we can still expect pressure to the upside in CPI in the coming months, especially in the service sector.<ref>https://tradingeconomics.com/united-states/wage-growth#:~:text=Wage%20Growth%20in%20the%20United,percent%20in%20March%20of%202009</ref> | ||
* However, the trend has been slowing recently, recent labor data shows average hourly earnings increased by 4.4% from a year earlier in January of 2023, after an upwardly revised 4.8% rise in the prior month and slightly above market estimates of 4.3%. It was the smallest annual growth in average hourly earnings since August of 2021. <ref>https://tradingeconomics.com/united-states/average-hourly-earnings-yoy</ref> | *However, the trend has been slowing recently, recent labor data shows average hourly earnings increased by 4.4% from a year earlier in January of 2023, after an upwardly revised 4.8% rise in the prior month and slightly above market estimates of 4.3%. It was the smallest annual growth in average hourly earnings since August of 2021. <ref>https://tradingeconomics.com/united-states/average-hourly-earnings-yoy</ref> | ||
=== 2. Supply chain issues === | ===2. Supply chain issues=== | ||
Supply chain pressures have been easing in the last few months, which has been helping with good disinflation in past months. However, the recent stabilization could mean a limited effect on CPI going forward. | Supply chain pressures have been easing in the last few months, which has been helping with good disinflation in past months. However, the recent stabilization could mean a limited effect on CPI going forward. | ||
* Global supply chain pressures decreased moderately in January and the index was revised upward in December.<ref name=":2">https://www.newyorkfed.org/research/policy/gscpi#/interactive</ref> | *Global supply chain pressures decreased moderately in January and the index was revised upward in December.<ref name=":2">https://www.newyorkfed.org/research/policy/gscpi#/interactive</ref> | ||
* The largest contributing factors to supply chain pressures were declines in Korean delivery times, Chinese delivery times, and Euro Area backlogs.<ref name=":2" /> | *The largest contributing factors to supply chain pressures were declines in Korean delivery times, Chinese delivery times, and Euro Area backlogs.<ref name=":2" /> | ||
=== 3. PPI === | ===3. PPI=== | ||
The PPI serves as a leading indicator for the CPI, so when producers face input inflation, the increases in their production costs are passed on to retailers and consumers. | The PPI serves as a leading indicator for the CPI, so when producers face input inflation, the increases in their production costs are passed on to retailers and consumers. | ||
* PPI has been in a significant declining trend since Q2 2022, declining more than 5%. CPI has been following the same behavior in recent months and is expected to continue <ref name=":1">https://tradingeconomics.com/united-states/producer-prices-change</ref> | *PPI has been in a significant declining trend since Q2 2022, declining more than 5%. CPI has been following the same behavior in recent months and is expected to continue <ref name=":1">https://tradingeconomics.com/united-states/producer-prices-change</ref> | ||
* Producer prices for final demand in the US increased 6.2 percent from a year earlier in December 2022, following a revised 7.3 percent gain in November and compared with market expectations of a 6.8 percent advance. It was the lowest producer price inflation rate since March 2021<ref name=":1" /> | *Producer prices for final demand in the US increased 6.2 percent from a year earlier in December 2022, following a revised 7.3 percent gain in November and compared with market expectations of a 6.8 percent advance. It was the lowest producer price inflation rate since March 2021<ref name=":1" /> | ||
=== 4. Housing Market === | ===4. Housing Market=== | ||
Shelter CPI is the biggest component in the core CPI for the US. The weighted shelter takes up 32.77% of CPI, of which 7.8% is rent and 23.68% is private housing, | Shelter CPI is the biggest component in the core CPI for the US. The weighted shelter takes up 32.77% of CPI, of which 7.8% is rent and 23.68% is private housing, | ||
* Home prices have started to decline since July 2022<ref>https://tradingeconomics.com/united-states/case-shiller-home-price-index-mom</ref>, but due to the lagging shelter CPI data, this will start to be reflected in CPI until the second half of 2023. Housing data has stabilized during January 2023, and needs to be monitored because this could limit the price drops in the sector. | *Home prices have started to decline since July 2022<ref>https://tradingeconomics.com/united-states/case-shiller-home-price-index-mom</ref>, but due to the lagging shelter CPI data, this will start to be reflected in CPI until the second half of 2023. Housing data has stabilized during January 2023, and needs to be monitored because this could limit the price drops in the sector. | ||
=== 5. Energy === | ===5. Energy=== | ||
* Oil prices have come down significantly since the peak to around $77, below pre-war levels<ref name=":0">https://oilprice.com/oil-price-charts/45</ref>. However, prices increased in January 2023 from 73 to 77 | *Oil prices have come down significantly since the peak to around $77, below pre-war levels<ref name=":0">https://oilprice.com/oil-price-charts/45</ref>. However, prices increased in January 2023 from 73 to 77 | ||
* Futures market pricing more declines.<ref>https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.quotes.html</ref> | *Futures market pricing more declines.<ref>https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.quotes.html</ref> | ||
* Gasoline has also increased prices in the month of January 2023. <ref>https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=w</ref> | *Gasoline has also increased prices in the month of January 2023. <ref>https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=w</ref> | ||
* Natural gas prices have come down also below pre-war levels.<ref name=":0" /> | *Natural gas prices have come down also below pre-war levels.<ref name=":0" /> | ||
* China's intent to reopen its economy could increase energy prices in 2023 due to increased demand. | *China's intent to reopen its economy could increase energy prices in 2023 due to increased demand. | ||
[[File:FjjZBKRWIAITa5Y.png|thumb|https://twitter.com/MacroAlf/status/1601366332527693824/photo/1]] | [[File:FjjZBKRWIAITa5Y.png|thumb|https://twitter.com/MacroAlf/status/1601366332527693824/photo/1]] | ||
=== 6. Car Prices === | ===6. Car Prices=== | ||
* Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased 2.5% in January compared to December. The Manheim Used Vehicle Value Index (MUVVI) rose to 224.8, down 12.8% from a year ago. January’s increase was driven in part by the seasonal adjustment.<ref>https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html</ref> This recent increase could create upward pressure on inflation short term. | *Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased 2.5% in January compared to December. The Manheim Used Vehicle Value Index (MUVVI) rose to 224.8, down 12.8% from a year ago. January’s increase was driven in part by the seasonal adjustment.<ref>https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html</ref> This recent increase could create upward pressure on inflation short term. | ||
* JPM research expects prices to decline by 2.5% to 5% for new cars and by 10% to 20% for used cars in 2023.<ref>https://www.jpmorgan.com/insights/research/when-will-car-prices-drop#:~:text=Average%20prices%20were%20up%2042.5,to%2020%25%20for%20used%20cars.</ref> | *JPM research expects prices to decline by 2.5% to 5% for new cars and by 10% to 20% for used cars in 2023.<ref>https://www.jpmorgan.com/insights/research/when-will-car-prices-drop#:~:text=Average%20prices%20were%20up%2042.5,to%2020%25%20for%20used%20cars.</ref> | ||
=== 7. Lower demand === | ===7. Lower demand=== | ||
The slowing in demand the economy has started to experience will help put downside pressure on prices. The pricing power companies experienced during 2022 will diminish as demand declines, especially on discretionary items. | The slowing in demand the economy has started to experience will help put downside pressure on prices. The pricing power companies experienced during 2022 will diminish as demand declines, especially on discretionary items. | ||
* Spending is expected to continue slowing as excess savings decline, debt cost increases (more income will go towards debt service), and banks start to tighten lending conditions<ref>https://fred.stlouisfed.org/series/DRTSCLCC</ref>. | *Spending is expected to continue slowing as excess savings decline, debt cost increases (more income will go towards debt service), and banks start to tighten lending conditions<ref>https://fred.stlouisfed.org/series/DRTSCLCC</ref>. | ||
* In terms of the possibility of a recession, historically, inflation has come down on average 6.8% in a recession since 1923. | *In terms of the possibility of a recession, historically, inflation has come down on average 6.8% in a recession since 1923. | ||
== Long term inflation drivers == | ==Long term inflation drivers== | ||
== References: == | ==References:== | ||