- by New Deal democrat
Wow, some actual new economic data on which to report - how refreshing!
To be clear, the only reason this was reported is that it was necessary for the calculation of the annual cost of living increases to Social Security checks. Had these been frozen there would have been a “million walker/cane/Medicare scooter march” on Washington.
But let us not be curmudgeonly about it, and dig right in, because there are some significant trends in the data.
First, both the monthly and annualized data show that inflation bottomed almost exactly on “Liberation Day” when massive tariff increases were announced this past spring; and that renewed inflation is percolatiing through the economy, as shown in the monthly (red, right scale) and YoY (blue, left scale) comparisons:
YoY inflation in September was the highest since January, and before that, June of 2024.
That April of this year marked the low for inflation is shown in even more relief with the changes for headline inflation (blue), core inflation (red), and inflation ex-shelter (gold) since the beginning of 2023:
Not only has headline inflation reversed, but there has been a smaller reversal in core inflation. But the biggest change of trend is that inflation ex-shelter, at 2.7%, was at its highest level since April 2023.
And recall that shelter is a lagging component of inflation. Which means that, paradoxically, although it is still elevated, it is the one important component of inflation that is still decelerating. To begin with, as per usual, the below graph compares the YoY% changes in the repeat home sales indexes, which lead by about 12-18 months (/2.5 for scale), to CPI for shelter (red). YoY home price increases are near or at multi-year lows, and shelter inflation has followed. In September, shelter CPI increased 0.2%, the lowest monthly increase in the past 4 years except for this past June. On a YoY basis it is up slightly less than 3.6%, its lowest level since October of 2021. The below graph includes several years before Covid to show that this is actually at the very top end of its 3.2%-3.6% range during the latter part of the last expansion:
On a monthly basis, actual rent increased 0.2% (the lowest since March 2021), while fictitious owners’ rent increased 0.1%, the lowest such increase since November 2020:
On an YoY basis they advanced 3.4% and 3.8% respectively, the lowest YoY% increases since the end of 2021:
This is the one big silver lining in this month’s report, because we can expect shelter inflation to continue to decelerate for an ongoing number of months.
Let’s take a look at a few other areas of interest.
First, new car prices continue to be largely unchanged, up 0.2% for the month and up only 0.8% YoY. Meanwhile in a reversal from recent months, used car prices declined -0.4%, and their YoY increase decelerated from 6.0% to 5.1%. On an absolute basis, new cars have been up almost exactly 20% from their pre-pandemic range for the past 3 years, while used cars have been up about 30% for the past 20 months:
I suspect that used car prices increased more since the pandemic because car loan interest rates may be causing a bigger percent of purchasers to go to lower cost used vehicles.
Next, transportation services (mainly car repairs and insurance) lag the prices of new and used cars. Inflation here returned to below 4.0% YoY this year, and was up 2.7% YoY in September. While insurance costs have increased only 3.1% in the past year (not shown in the graph below), maintenance and repairs have accelerated in recent months and are up 7.7% YoY:
I suspect this is a direct result of the impact of tariffs.
Next, recently price increases in medical care services have also re-accelerated, and again this month increased 0.3% for a 3.9% YoY increase:
Finally, gas for utilities and electricity costs have also turned up sharply this year. But in September both declined, the former by -1.2% and the latter by -0.5%. Nevertheless, on a YoY basis, they are up 11.7% and 5.1%, respectively:
At least some of this is probably due to a sharp increase in demand caused by the enormous use of electricity in data-mining plants used for AI, much of which is passed on to ordinary residential customers.
In the past few months, I wrote that consumer inflation was in a transitionary period. September’s report, with its definitive re-acceleration only counterbalanced by the important and continuing declaration of shelter inflation, shows that we are further along that path.
