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By Wolf Richter for WOLF STREET.
On a month-to-month basis, the Consumer Price Index (CPI) and Core CPI accelerated in July. Inflation in core services, which accounts for 65% of total CPI, bounced back from the outlier and re-accelerated sharply; food prices ticked up; energy prices stopped dropping; and durable goods prices slowed their historic plunge, according to the Bureau of Labor Statistics today.
It’s the historic plunge in durable goods prices that has done the heavy lifting in bringing inflation down this year. But durable goods prices aren’t going to plunge forever from the pandemic spike. Services inflation, though it has come down from the red-hot zone, remains high.
On a month-to-month basis:
Core Services CPI: +0.31% (+3.8% annualized), acceleration from +0.13% in June.
Durable goods CPI: -0.30% (-3.6% annualized), a slower drop than in June.
Core CPI: +0.17% (+2.0% annualized), biggest rise since April.
Food at home CPI: +0.13%, same increase as in June.
Energy: unchanged, after the drops in prior months.
Overall CPI: +0.15% (+1.9% annualized), highest since April.
On a year-over-year basis, in summary:
Core services CPI (red line in the chart below) rose by 4.9% year-over-year in July. It has been near the 5% line since December 2023. It includes all services except energy services.
Durable goods CPI (green) has been falling since mid-2022 to unwind the massive spike during the pandemic, led by plunging used-vehicle prices. In July, durable goods CPI fell by 4.1% year-over-year, same drop as in June, and the biggest drops since 2003.
Core CPI (blue), which excludes food and energy, rose by 3.2% year-over-year, continuing a slow deceleration, driven by the historic plunge in durable goods prices, while services inflation remains high.
Overall CPI (yellow) rose by 2.9% year-over-year, a slow deceleration from June. It has been in the same narrow range since June 2023.
“Core” CPI, month-to-month.
Core CPI rose by 0.17% in July from June, or +2.0% annualized, the biggest increase since April, and an acceleration from June (+0.06%), which had been an outlier in the month-to-month squiggles (blue line in the chart below).
The increase in month-to-month Core CPI was driven by the re-acceleration in core services CPI. The durable goods CPI plunged, but at a somewhat slower rate than in prior months, pushing down core CPI somewhat less forcefully.
The six-month core CPI, which irons out some of the month-to-month squiggles, rose by 2.8% annualized, the third deceleration in a row.
“Core services” CPI bounced back from the outliers in June & May.
Core services CPI increased by 3.8% annualized in July from June (+0.31% not annualized), a big bounce-back from the outlier in June and the highest since April (blue line).
The six-month core services CPI decelerated to 4.2% annualized, the smallest increase since January 2022, as the high outlier in January (+8.3%) fell out of the six-month period (red).
The housing components of core services CPI.
Rent of Primary Residence CPI bounced back from the outlier in June, and jumped by 6.0% annualized in July from June, the fastest increase since May 2023 (blue).
The three-month rate rose by 4.7%, an acceleration from June and back to the same rate as in May. In January, the three-month reading was 4.9%, so rent inflation really hasn’t cooled meaningfully this year.
The Rent CPI accounts for 7.6% of overall CPI. It is based on rents that tenants actually paid, not on asking rents of advertised units for rent. The survey follows the same large group of rental houses and apartments over time and tracks the rents that the current tenants, who come and go, actually paid in these units.
The Owners’ Equivalent of Rent CPI bounced back from the outlier in June and rose by 4.4% annualized month to month.
The three-month OER CPI also rose by 4.4% annualized, a further deceleration (red).
The OER index accounts for 26.8% of overall CPI. It estimates inflation of “shelter” as a service for homeowners – as a stand-in for the services that homeowners pay for, such as interest, homeowner’s insurance, HOA fees, maintenance, and property taxes. As an approximation, it is based on what a large group of homeowners estimates their home would rent for, the assumption being that a homeowner would want to recoup their cost increases by raising the rent.
“Asking rents…” The Zillow Observed Rent Index (ZORI) and other private-sector rent indices track “asking rents,” which are advertised rents of vacant units on the market. Because rentals don’t turn over that much, the ZORI’s spike in 2021 through mid-2022 never fully translated into the CPI indices because not many people actually ended up paying those asking rents.
For July, the ZORI jumped by 0.44% month-to-month, seasonally adjusted, and by 3.4% year-over-year.
The chart shows the CPI Rent of Primary Residence (blue, left scale) as index value, not percentage change; and the ZORI in dollars (red, right scale). The left and right axes are set so that they both increase each by 55% from January 2017. The ZORI was up by 50% from January 2017, and the CPI Rent was up by 38% over the same period.
Rent inflation vs. home-price inflation: The red line in the chart below represents the CPI for Rent of Primary Residence as index value. The purple line represents the Case-Shiller 20-Cities Home Price Index (which we use for our series, “The Most Splendid Housing Bubbles in America”). Both indexes are set to 100 for January 2000:
Motor-vehicle maintenance & repair inflation has cooled in recent months, after surging 35% since January 2020 because wages of auto-repair technicians had surged, and because prices of replacement parts had surged.
In July from June annualized: -3.5%
Year-over-year: +4.6%
Since January 2020: +35%.
Motor vehicle insurance inflation continues to explode; it exploded in 2022 and 2023 because motor vehicle repair costs surged, and because used vehicle prices (replacement values) had exploded in 2021 and 2022, and because auto insurers wanted to fatten up their profit margins.
For example, Buffett’s Berkshire Hathaway reported for Q2 that operating income from the companies it owns rose by 15% to $11.6 billion, with almost half of that profit coming from its insurance empire. At GEICO, massive increases in premiums and reduced claims caused underwriting profits to more than triple!
And unlike motor-vehicle repair costs which have stopped rising over the past few months, and unlike used vehicle prices which have continued to plunge, inflation of auto insurance continues to explode:
In July from June: +15.2 annualized
Year-over-year: +18.6%
Since January 2022: + 48%
Food away from Home CPI – often called food services – includes full-service and limited-service meals and snacks served away from home, food at cafeterias in schools and work sites, food served at stalls, etc.
In July from June annualized: +2.5%, a deceleration
Year-over-year: +4.1%, same increase as in June
Since January 2020: +27%.
Core services price level. Since January 2020, the core services CPI has surge by 22%. And it’s not just driven by housing, but very broadly: “Super core” services CPI, which excludes rent and OER, increased by 20% since January 2020.
Major Services ex. Energy Services
Weight in CPI
MoM
YoY
Core Services
64%
0.3%
4.9%
Owner’s equivalent of rent
26.8%
0.4%
5.3%
Rent of primary residence
7.6%
0.5%
5.1%
Medical care services & insurance
6.5%
-0.3%
3.3%
Food services (food away from home)
5.4%
0.2%
4.1%
Education and communication services
5.0%
0.2%
2.2%
Motor vehicle insurance
2.9%
1.2%
18.6%
Admission, movies, concerts, sports events, club memberships
1.8%
0.4%
3.4%
Other personal services (dry-cleaning, haircuts, legal services…)
1.5%
0.3%
5.1%
Lodging away from home, incl Hotels, motels
1.3%
0.2%
-2.8%
Motor vehicle maintenance & repair
1.2%
-0.3%
4.6%
Public transportation (airline fares, etc.)
1.2%
-1.2%
-2.2%
Water, sewer, trash collection services
1.1%
0.5%
4.5%
Video and audio services, cable, streaming
0.9%
0.6%
2.5%
Pet services, including veterinary
0.4%
0.3%
4.9%
Tenants’ & Household insurance
0.4%
0.0%
3.1%
Car and truck rental
0.1%
0.3%
-6.2%
Postage & delivery services
0.1%
0.7%
5.1%
Durable goods CPI.
The durable goods CPI fell by 3.6% annualized (-0.30% not annualized) in July from June, and by 4.1% year-over-year, same drop as in June, and both were the biggest drops since 2003.
New and used vehicles dominate this index. Other goods included are information technology products (computers, smartphones, home network equipment, etc.), appliances, furniture, fixtures, etc. All categories have been experiencing price declines starting in late 2022, following the ridiculous price spike during the pandemic.
From January 2020 to the peak in August 2022, durable goods prices spiked by 24%. Since then, they have dropped by 7.1%, having unwound nearly one-third of the pandemic spike. Compared to January 2020, the index is still up 17%.
Major durable goods categories
MoM
YoY
Durable goods overall
-0.3%
-4.1%
New vehicles
-0.2%
-1.0%
Used vehicles
-2.3%
-10.9%
Information technology (computers, smartphones, etc.)
0.6%
-6.7%
Sporting goods (bicycles, equipment, etc.)
-0.8%
-1.8%
Household furnishings (furniture, appliances, floor coverings, tools)
0.1%
-2.3%
New vehicles CPI fell 2.3% annualized in July from June (-0.19% not annualized), the seventh month-to-month decline in a row. Year-over-year, the index fell by 1.0%.
After the blistering spike from early 2021 into early 2023, and then a long plateau, prices are now finally declining, amid a glut of new vehicles on the lots of many dealers that calls for big incentives and discounts to move the vehicles. The index is still up 19% from January 2020:
In the years before the pandemic, the new vehicle CPI zigzagged along a flat line, though vehicles were getting more expensive. This is the effect of “hedonic quality adjustments” applied to the CPIs for new and used vehicles and some other products (see our explanation of hedonic quality adjustments in the CPI).
Used vehicle CPI, seasonally adjusted, plunged in June from May by 24.4% annualized (-2.3% not annualized), and by 10.9% year-over-year (red).
Not seasonally adjusted, used vehicle prices fell 1.1% annualized in July from June, after rising in the prior month, and have been roughly flat all year. It’s just that seasonally, used vehicle prices normally rise during the first part of the year into the summer, and this year, they didn’t rise (blue).
But now, which is concerning on the inflation front, the private-sector data on wholesale prices from Manheim, the largest auto auction in the US, already showed big price increases in July, as used-vehicle inventories have tightened and dealers tried to restock at auctions, and these wholesale price increases will filter into retail prices over the next few months.
Used vehicle CPI has now given up over half (55%) of the spike from January 2020 through January 2022, but is still 25% higher than in January 2020.
Food Inflation.
Inflation of “Food at home” – food purchased at stores and markets and eaten off premises – has cooled over the past year from the red-hot pace from 2020 into early 2023.
In July, it ticked up by 0.1% from June, and was up 1.1% year-over-year.
MoM
YoY
Food at home
0.1%
1.1%
Cereals, breads, bakery products
-0.5%
0.0%
Beef and veal
1.2%
4.5%
Pork
-0.2%
3.6%
Poultry
0.2%
0.9%
Fish and seafood
-0.5%
-1.6%
Eggs
5.5%
19.1%
Dairy and related products
-0.2%
-0.2%
Fresh fruits
1.1%
-1.2%
Fresh vegetables
0.9%
0.4%
Juices and nonalcoholic drinks
0.2%
2.5%
Coffee, tea, etc.
0.7%
0.4%
Fats and oils
-0.6%
3.6%
Baby food & formula
-0.3%
4.6%
Alcoholic beverages at home
0.2%
2.0%
The CPI for food at home is up 25% from January 2020, and prices, though not rising fast anymore, remain at very high levels.
Apparel and footwear CPI.
Apparel and footwear are in the basket of nondurable goods, along with food, energy products, household supplies, and other stuff.
Month-to-month, prices ticked up 0.19% but were down 0.5% year-over-year. Prices had fallen during the early months of the pandemic as many stores were closed, then rose from that dip. Note that prices trended lower in the years before the pandemic.
For the past 12 months, prices ended up roughly flat, despite a drop and a bounce in the middle. In July, the index was 5.6% above July 2019:
Energy.
CPI for Energy, by Category
MoM
YoY
Overall Energy CPI
0.0%
1.1%
Gasoline
0.0%
-2.2%
Electricity service
0.1%
4.9%
Utility natural gas to home
-0.7%
1.5%
Heating oil, propane, kerosene, firewood
1.0%
1.9%
The CPI for energy covers energy products and services that consumers buy and pay for directly:
Gasoline prices, which account for about half of the energy price index, are very seasonal, with the lowest prices in December or January and the highest prices during driving-season which starts in June. In July, prices not seasonally adjusted ticked up from June, but in June, they’d dropped, instead of rising.
So seasonally adjusted, gasoline prices were essentially unchanged in July from June, after the plunge in June from May (red).
Since the top of the spike in June 2022, gasoline prices have dropped 28%:
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The post Beneath the Skin of CPI Inflation: Broad Month-to-Month Acceleration, Services CPI Bounces Back from Outlier, Plunge in Durable Goods Prices Slows appeared first on Energy News Beat.
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