- by New Deal democrat
Let me cut right to the chase: the February consumer inflation report was actually very good. It wasn’t just that the headline and core numbers only went up 0.2% for the month, or that the YoY gains in each decelerated. Let me let you in on a little secret: one of the first things I do when the report comes out is scour the categories for any “problem children,” which I arbitrarily define as a category where there has been more than 4% inflation YoY.
This month, outside of the two most lagging suspects, shelter and transportation services, there were none outside of some really obscure small components, like men’s suits. And even in the case of the two remaining problem children, both decelerated, especially on a YoY basis.
So let’s get to the graphs.
First, here are the headline (blue), core (red), and ex-shelter (gold) YoY% numbers:
On a YoY basis, headline prices were up 2.8%, core was up 3.1%, and ex-shelter prices were up 2.0%. The YoY headline number was the lowest in 4 years outside of the soft patch late last year. The core number was the lowest in almost 4 years period.
Interestingly, CPI less shelter jumped 0.5% in February. This might give me cause for concern, but when I looked back at the monthly data for the past 10 years, the February readings in this metric have typically been among the highest of the year, suggesting unresolved seasonality issues. Here’s the relevant graph (I know, squiggles, but trust me many of the big jumps have been in February):
Now let’s turn to the chronically big problem child: shelter. This increased 0.3% for the month, tied for the 2nd lowest monthly increase in the past 2.5 years. And on a YoY basis, at +4.2%, it was the lowest in over 3 years. The below graph breaks it down into its Owners Equivalent Rent (red) and rent of primary residence (blue) components on a monthly basis:
You can see that the downtrend remains intact. And the same is true when we look at it YoY:
At 4.4% for OER and 4.1% for actual rent, both are at 3 year lows. Although I won’t bother with the graph today, since this series lags actual house prices, I continue to expect slow disinflation winding up somewhere around the 3.5% range within the next 12 months. This is buttressed by the most recent updates for new rent prices, which continue to be flat YoY.
The news is also “less bad” for the other, even more lagging problem child, transportation services. This is primarily motor vehicle insurance and repairs, which go up in price after the price of vehicles and vehicle parts go up. For the month, it was unchanged, and on a YoY basis, it was up “only” 6.0%, nevertheless the best reading in 3 years:
Cleaning up a few other points, the former problem child of vehicle prices continues its normalization process. New car prices were unchanged for the month and actually *down* -0.3% YoY, while used car prices increased a sharp 0.9% for the month, but are only up 0.8% YoY:
Note the above graph norms both to 100 just before the pandemic. Since that time new car prices are up 20%, and used car prices up 33%. This is a lingering after effect of the shortage of new cars in the first several years after the pandemic due to the inability to produce computer chips in sufficient volume. Although I won’t bother with the graph today, keep in mind that average hourly wages are up 28.5% since the outset of the pandemic as well, so only used vehicles are higher in “real” terms since then.
And what about gas prices? CPI for energy increased 0.2% for the month, and is *down* -0.3% YoY:
No upward pressure there at all for the moment.
To sum up, as I said at the beginning of this note: this was a very good report. There were only two, lagging, continued problem children, and their contributions were lessening. As has been the case for the past 2 years, take out shelter and consumer inflation has not been a problem at all.
Finally, let’s see what that does for “real” wages and payrolls.
“Real” wages for nonsupervisory workers rose 0.1% in February, and were 1.3% higher YoY. The bad news is that they have been stagnant since October:
“Real” aggregate payrolls for nonsupervisory workers rose 0.2% in February (blue, right scale), but they remain slightly below their all time high set in December. Nevertheless they remain higher YoY by 2.3% (red, left scale), in line with their increasing trend over the past 24 months:
With the exception of the pandemic, and the 1970 recession, they have always peaked a number of months before the onset of recession. I will only be concerned if this series fails to exceed its December peak for several more months.
