CPI Feb 2024: Extra Innings
We look at a set of CPI numbers where neither the bulls nor the bears made contact on the inflation pitch.
The headline and core CPI lines do not advance the cause of those demanding cuts “early and often” with setbacks on some key line items, but the Feb numbers also do not give the UST bears a lot to crow about as the debating game drags on…and on.
The Shelter line and Energy were the main movers for Feb 2024, but the CPI trend is still plagued by a stubborn Services line at +5.0% and +5.2% ex-Energy.
As broken records go, the CPI ex-Shelter number at +1.8% gives one hope the derived Owners’ Equivalent Rent numbers will start to tick lower on a MoM basis as multifamily supply takes hold, and real-time indicators showing mixed rent data nationally have some influence. Not happening so far.
Energy is sending mixed signals as gasoline MoM posted +3.8% after the prior two months of deflation, thus lowering the YoY deflation rate for gasoline.
The above chart frames some of the adjusted CPI metrics we like to watch (Jan 2024 CPI: The Big 5, Add-ons, and Favorite “CPI-ex” Indexes 2-13-24). Our top priority lines are All Items ex-Shelter and the various cuts of Services lines (notably Total Services, Services ex-Energy and Ex-Rent of Shelter).
The Services line has moved past “sticky” it seems and moved on to Super Glue. The “All Items less Shelter” line ticked higher in Feb 2024 after making some progress and Total Services is still sitting at +5.0%. Finding a way to explain away the wage pressures and pricing power to spin an optimistic view on getting that number lower is no picnic.
We see Durables staying in deflation mode at -1.6% while Nondurables is a manageable +1.1% but also ticking higher on the YoY line. Major durable line items such as autos (new and used) have stepped back from being a challenge to inflation metrics, but the services side of automotive remains a problem as we detail below.
The above chart updates our Big 5 categories which drive the numbers at around 75% of the index. If we add in almost 12% of the CPI index from some of the notable “add-ons” in the next chart, the two charts cover approximately 87% of the index.
Shelter has been the big headache with such an outsized share of the CPI index. The needle is just not moving fast enough in the expected direction. We have covered that Shelter topic ad nauseum in past commentaries, and our replay line is that Owners’ Equivalent Rent (OER) does not mirror the “checkbook” experience of the consumer the way rent of primary residence does. At 26.8% of the CPI index, sticky OER makes it tough to move the needle on a theory. We still are convinced the economists took a vote on OER just before “last call” at the Faculty Club.
Energy is a globally driven commodity while natural gas is more a seasonally driven (weather and space heating) commodity in a period of overproduction/excess supply (associated gas, etc.) even though the global demand impact is growing as a factor with LNG. We see deflation for piped gas, but gasoline remains the main event for the household budget along with brutal trends in auto insurance and recurring inflation in maintenance and repair. The demand for more skilled labor for high margin dealer Parts and Service operations in the age of the high tech car has been a recurring theme. Diagnostic skill sets are in broad demand in other industries as well. That is where wages flow into some services inflation lines.
The above chart updates some line items that are near and dear to many consumers. We see 2 improved, 3 worse, and 1 flat. Across these lines, 2 of the 6 are in deflation mode and only 2 of the 6 (Recreation Services, Internet) are above headline inflation.
See also:
Footnotes & Flashbacks: State of Yields 3-10-24
Employment: Real Numbers vs. Fictitious Dystopian Hellscapes 3-9-24
Payroll Feb 2024: Record, Revisions, Reality 3-8-24
JOLTS Jan 2024: Holding at “High” Even if Well Down from the Peak 3-6-34
Inflation Gut Check Jan 2024: PCE Prices, Income, and Outlays Help the Story 2-29-24
4Q23 GDP: Second Estimate, Moving Parts 2-28-24
Industrial Production: Capacity Utilization Limps Along 2-15-24
Retail Sales Jan 2024: Balancing Act Continues 2-15-24
Jan 2024 CPI: The Big 5, Add-ons, and Favorite “CPI-ex” Indexes 2-13-24
Trade Flows 2023: Trade Partners, Imports/Exports, and Deficits in a Troubled World 2-10-24
Fed Funds vs. PCE Inflation: Peaks and Valleys Across Time 2-7-23
Productivity: Takes the Edge off the 4% Handle YoY ECI 2-1-24