The October CPI in the United States might be the most important in confirming the unlikely immaculate disinflation that central bankers will have dreamt of since the pandemic—certainly, the “market” took the number as a strong signal that the hiking cycle may have come to an end. The October inflation print was consequential for three reasons: First, core was once more supported by negative prints in re-opening related items (used cars and trucks, -0.8% MoM; airfares, -0.9% MoM and hotels, -2.9% MoM) though somewhat offset by a positive print in medical services (+0.3%MoM for the second month running). Second, commodities ex. used cars and trucks was essentially flat—and has averaged -0.04% MoM over the past 5 months. Third, super core services (ex. housing, medical care, hotels, and airfares) slowed meaningfully to +0.39% MoM from +0.52% MoM in Sept, +0.57% MoM in Aug. and 0.71% MoM in July. This is the lowest monthly print since May and only the fourth time this is printed below 0.4% MoM since Dec. 2021. This is the most important signal from the October reading.
- Date Posted:
- December 1, 2023
Earlier this year, the New Tenant Rent Index (NTR) was showing significant disinflation in rent prices that have since begun passing through to decelerations in CPI shelter prices—and recently released NTR data through the third quarter suggests that even more stabilization is yet to come. Growth in Gross Labor Income—the aggregate wages and salaries of all workers in the economy—continues to decline as the labor market slows toward normal pre-pandemic growth rates. Given how tight the relationship between cyclical growth in employment/wages and housing inflation is, a deceleration in NTR has naturally followed the slower labor market of the last year.