- by New Deal democrat
After two benign months due to a temporary decline in energy prices this summer, the higher trend in inflation returned. And that continued in September, as prices (blue) rose 0.6%, and on a YoY% basis accelerated 0.3% to 3.7%. Core CPI excluding food and energy (red) also rose 0.3% for the second month in a row, rising from its post-pandemic YoY% low of 2.4% to 2.6%. Excluding shelter (gold), CPI rose 0.5%, but also increased 3.5% YoY:
Needless to say, the big culprit was energy prices, which rose 5.2% in September alone, and were up 20.4% YoY:
And the bad news extended to shelter, which is 1/3rd of the entire index. It reversed its recent deceleration, rising 0.4% for the month, and 3.2% YoY (blue). Of it’s two components, Owner’s equivalent rent rose 0.3% monthly and increased to 3.3% YoY, while actual rent of primary residence also rose 0.2% and was up 2.8% YoY:
There was other bad news as well. Electricity prices rose another 0.2%, and are higher by 20.4% YoY. Utility services did decline -0.3% for the month, but remained higher by 5.0% YoY. And computer hardware prices rose 1.4% for the month, and were higher by 9.7% YoY:
Motor vehicle maintenance and repair also continued to be a problem child, up 0.7% for the month and 5.8% YoY:
If there was a silver lining, it was that motor vehicle prices continued to be somnolent. New vehicle prices (red) rose 0.2% for the month, and were only higher 0.6% YoY, and while used vehicle prices (gold) rose 0.7% for the month, they remained lower YoY by -1.5%. The average for all motor vehicles (blue) was higher 0.5% monthly, but was unchanged YoY:
Finally, let’s update real nonsupervisory hourly wages (orange), which declined and real aggregate nonsupervisory payrolls (red), both of which declined -0.4% for the month. Both remain about -0.9% and -0.5% below their February and January peaks respectively:
Real wages are also down -0.4% YoY, but payrolls remain positive, up 0.5% YoY:
Recall that real aggregate nonsupervisory wages are an excellent short leading indicators for recession. Further, when they turn negative YoY, they have been a good coincident marker for a recession. The current situation remains almost sui generis. It is very rare for this metric to stay below peak for more than half a year without a recession occurring shortly thereafter. In fact, only three times in the past 60 years, for *1* month apiece in 1968, 1996, and 2011, have decelerating real aggregate nonsupervisory payrolls been higher this little YoY without a recession ensuing shortly thereafter:
In conclusion, this was a poor report for obvious reasons. Not only are oil and gas prices driving up the headline number, but the recent quietude in shelter prices appeared to reverse a little higher, and the AI-data center driven increases in electricity, water, and computers are still firmly in place. While my forte is forecasting rather than Fed-watching, it is difficult to see the Fed being comfortable with this widespread boomerang away from its 2% target.
