NAA Inflation Tracker: January 2024

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CPI, Latest Release, December 2023  

Inflation came in higher than expected, rising 3.3% year-over-year (seasonally adjusted) and 0.3% over the month, compared with consensus forecasts of 3.2% and 0.2%, respectively. Core inflation dropped below 4.0% for the first time since August 2021 and came in as expected for the month at 0.3%. Shelter prices contributed to more than half of the monthly increases. Prices that had dropped during the previous two months, such as those for energy, new vehicles and airline fares, reversed course in December. In fact, of the main categories in the core index, just 3 decreased this month: motor vehicle maintenance and repairs (-0.3%), tobacco and smoking products (-0.1%), and medical care commodities, which includes medicinal drugs and medical equipment and supplies (-0.1%). 

cpi as of december 2023


CPI for Housing, December 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.  Year-over year, shelter cost increases continued to decelerate to 6.5% for rent and 6.3% for owner’s equivalent rent, the lowest since the summer of 2022. But they remain stubbornly elevated, with both measures increasing 0.5% monthly, on average, for the past 10 months. It’s noteworthy, however, that the 12-month increase in rent decelerated at a faster pace in December. At this rate of deceleration, we can expect to see CPI for rent at its 5-year pre-pandemic average of 3.7% by July of this year. 

cpi shelter costs as of december 2023


“Super Core” Inflation, December 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 ticked up again to 2.2%. In addition to price increases for new vehicles and airfares, prices also increased for used cars and trucks, medical care services and car insurance. 

cpi less food, shelter, and energy as of december 2023


Inflation Expectations, 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. Both measures improved considerably in December with consumers surveyed by the University of Michigan finally feeling optimistic about where inflation is heading. Expectations plunged from 4.5% to 3.1%, nearly in line with pre-pandemic measures. The Fed’s Index, at 3.0%, is the lowest in 3 years. Expectations about financial situations and credit availability contributed to the low reading. In the next year, consumers expect prices to decelerate for food and rent, remain flat for gas and medical care, and to accelerate for college tuition.

inflation expectations one year from now as of december 2023


Wage Growth, December 2023

Wage growth, as measured by average hourly earnings, remained elevated at 4.1% year-over-year. For perspective, growth averaged 2.8% in the 5 years leading up to the pandemic. While December’s figures are a negative for the Fed, the good news is that wage growth continued to outpace inflation, leaving consumers with more spending power. 

Jobs in the manufacturing sector, particularly for durable goods, earned the highest increases (6.1%) while education and healthcare lagged with just 2.5% growth. Financial activities, which encompass the real estate sector, have consistently come in higher than average, and rose 5.0% in December. 

wage growth as of december 2023


What to Watch in the Next Month 

  • Given the healthy December jobs report, elevated wage growth, and inflation still above target, analysts expecting the first rate cut at the Fed’s March meeting may want to think again. The somewhat bumpy inflation readings, which the Fed warned about, lend themselves to holding the interest rate at its current level to allow the full impacts of monetary policy to play out.   
  • Although it is still too early to gauge impacts to the U.S. economy, the crisis in the Red Sea poses downside risks to the progress made on inflation through higher shipping costs and supply chain disruptions. 


Next Tracker: February 13, 2024