- by New Deal democrat
After benign June and July consumer inflation due mainly to the temporary decline in energy prices, August inflation returned to its recent trend. On a monthly basis prices (blue) rose 0.4%, although on a YoY% basis, August equaled July’s 3.4%. But perhaps more importantly, core CPI excluding food and energy (red) rose 0.3%, and made a new post-pandemic YoY% low of 2.4%. Excluding shelter (gold), CPI rose 0.3%, but worryingly increased 3.6% YoY:
While I’ll go into more detail below, the good news on “core” inflation was mainly about a number of recent “problem children,” like transportation services and medical care, being somnolent, more than anything else.
But let’s start with shelter, which is 1/3rd of the entire index. It continued its deceleration, up 0.3% for the month, but up “only” 3.0% YoY (blue). Of it’s two components, Owner’s equivalent rent rose 0.2% monthly and 3.1% YoY, tying its post-pandemic low, while actual rent of primary residence also rose 0.2% in August but was only up 2.7% YoY, the second lowest YoY advance since the pandemic:
As I indicated above, with the exception of a few salient smaller purchases like coffee, or dental care, almost no sector of purchases exceeded 4% YoY. One portion of the former problem child of transportation services, to wit motor vehicles repairs and maintenance, did continue to rise, up 1.1% in August and up 5.2% YoY; but motor vehicle insurance has also become well-behaved. So I won’t bother with graphs.
Another former problem child, motor vehicles, remained sleepy. New vehicles (red) rose 0.3% for the month, but were only higher 0.6% YoY, while used vehicles (gold) rose 0.4% for the month, but were lower in price YoY by -2.3%. The average for all motor vehicles (blue) was higher 0.3% monthly, and *down* -0.5% YoY:
But if shelter was only slightly elevated, vehicles actually experienced deflation, and the rest of core categories were generally well-behaved, that was absolutely not the case for energy or energy services.
In the broad category of energy, prices in August rose 2.1%, and 16.3% YoY. Gas and oil rose 4.2% for the month, and were up 28.0% YoY:
Meanwhile, the AI data center related categories of electricity and utility services showed an actual decline of -0.4% monthly, but remained up 4.0% YoY%:
Additionally, computer software and accessories rose 3.8% (!) for the month and are up 8.4% YoY:
Before I conclude, let’s update real nonsupervisory hourly wages (orange), which declined -0.1% for the month and remain down less than -0.1% YoY; and real aggregate nonsupervisory payrolls (red), which rose 0.1% for the month and are up 1.0% YoY, although both remain about -0.5% and -0.1% below their February and January peaks respectively:
Recall that real aggregate nonsupervisory wages are an excellent short leading indicators for recession. The current situation is almost sui generis. On the one hand, it is very rare for this metric to stay below peak for more than half a year without a recession occurring shortly thereafter. On the other hand, a good coincident marker for the onset of recession is when they turn negative YoY, and in that regard they actually improved this month:
On final very big caveat. This data does not include the big increase in the price of gas and oil we have seen in the last few weeks. With the situation in the Strait of Hormuz becoming chronic, and the strategic oil reserve close to empty for all practical purposes, this statistic could well be underwater by the end of this year.
