NAA Inflation Tracker: December 2023
CPI, Latest Release, November 2023
November CPI came in largely as anticipated, increasing 0.1% from last month on a seasonally adjusted basis and up 3.1% year-over-year. The deceleration was once again driven by energy prices, down 5.4%. Core CPI stalled at 4.0%, still well above the Fed’s 2.0% target. Core prices increased 0.3% on a monthly basis, with decreases in apparel (-1.3%) and airfares (-0.4) more than offset by used cars and trucks, tobacco and smoking products, transportation services and car insurance, all increasing by more than 1.0%.
Several economic indicators watched closely by the Fed hit levels this month that have not been seen since inflation started ramping up in spring 2021, a promising sign as the Fed begins its final meeting of the year.
CPI for Housing, October 2023
The CPI includes two measures for shelter costs: owners’ equivalent rent and rent of primary residence, both of which are self-reported. Together, they comprise about one-third of CPI. Both measures experienced their eight consecutive month of deceleration, rising by 6.7% and 6.9%, respectively, year-over-year. Although still considerably lagging private sector data, CPI rent measures are down nearly 200 basis points from the peak in March of this year.
“Super Core” Inflation, October 2023
Due mainly to lags in CPI shelter data, the Fed has begun to focus more on “super core” inflation, that is, prices excluding food, energy and shelter. Year-over-year, super core inflation rose 2.1%, a slight uptick from last month, but still in line with the target rate. On a monthly basis, however, prices declined for the first time in a year.
Inflation Expectations, November/December 2023
The Fed tracks 21 different measures of inflation expectations. The data presented in the chart below are inflation expectations one year from now from the Federal Reserve Bank of New York’s Survey of Consumer Expectations and the University of Michigan’s Consumer Sentiment Index.
The University of Michigan Index rose again in November, to 4.5%, although the preliminary estimate for December plunged to 3.1%, which if it holds, would be the lowest rate since March 2021. Consumers are feeling particularly optimistic about current and future business conditions. The Fed’s index slipped below 3.5% for the first time since April 2021. Consumers expect prices to decrease the most for rent, followed by gas, food, and college tuition while expectations for medical costs remain flat.
Wage Growth, November 2023
Wage growth, as measured by average hourly earnings, continued to cool, remaining essentially unchanged in November, but dipping slightly below 4.0% year-over-year for the first time since June 2021. It is getting very close to the Fed’s preferred wage growth figure of about 3.5%. Sectors that still experienced increases of more than 5.0% included mining & logging, transportation & warehousing, and financial activities, which include the apartment industry.
What to Watch in the Next Month
- The Fed’s Board of Governors meets for the final time this year on December 12-13. In addition to setting monetary policy, they will release an updated summary of economic projections, which should give some clues about when, and by how much, they plan to begin to decrease interest rates.
- Although inflation is moving in the right direction, last week’s November jobs report shows a labor market that is still too hot, with nearly 200,000 jobs added to payrolls and the unemployment rate decreasing to 3.7%.
Next Tracker: January 11, 2024