NAA Inflation Tracker: May 2023

GIAA Resources, News,

CPI, Latest Release, April 2023   


Inflation rose 5.0% year-over-year on a seasonally adjusted basis, in line with concession expectations and matching last month’s rate. Core CPI (excluding food and energy) has settled in the 5.5%-5.6% range for four months. Monthly trends don’t reveal anything to the contrary with core CPI increasing 0.4%, little changed from the past several months. The headline figure increased to 0.4% from a 0.1% monthly gain in March, thanks to persistent increases in shelter costs. Other price hikes this month occurred in the used cars and trucks category, as well as gasoline.

Consumer Price Index 2023

CPI for Housing, April 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. Prices for both measures largely stagnated with rent at 8.8% year-over-year and owners’ equivalent rent at 8.1% (from 8.8% and 8.0%, respectively, in March.) On a monthly basis, they remained at their lowest levels in a year and are expected to decelerate through the summer months due to lagged reporting inherent in the BLS survey.

CPI Shelter Costs

“Super Core” Inflation, April 2023

Due mainly to these lags in CPI shelter data, the Fed has begun to focus more on “super core” inflation, that is, prices excluding food, energy and shelter. This measure has also been stuck – at 3.7% for 3 months – but remains at its lowest point in 2 years. Significant price declines over the month were seen in health insurance, car and truck rentals, hotels, public transportation (including airfares) and sporting events. More than offsetting these declines were higher prices for financial services and domestic services.

Super Core” Inflation, April 2023

Inflation Expectations, April 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.

Once again, the surveys moved in different directions. The University of Michigan measure increased one full percentage point to 4.6%, signaling that consumers expect inflation to be sticky over the coming months. The Fed survey ticked down to 4.4%, but not enough to erase the March increase. Consumers expect prices to fall for the cost of college education and food, to rise for gas and to remain unchanged for rent and medical care.

Inflation Expectations, April 2023

Wage Growth vs. Employment Cost Index, Q1 2023

The Employment Cost Index (ECI) is a quarterly measure of the change in the costs of labor. Unlike average hourly earnings, the series typically used for wage growth, the ECI calculation is not impacted by the change in employment levels among occupations and industries which can significantly skew wage levels. It also includes the costs of benefits to employers. The ECI is considered a purer measure of labor costs and is closely watched by the Fed.

Wage growth and the ECI continued a year-long deceleration in the first quarter, increasing 4.5% and 4.8%, respectively, year-over-year. While this cooling provides some good news for the Fed, wages, salaries and other costs of employment remain highly elevated from pre-pandemic levels. Despite an increasing number of layoffs and fewer job openings, the labor force is far too strong for the Fed to start easing monetary policy. Job gains in 2023 have averaged 285,000 per month and the unemployment rate remains at 50-year lows.

Wage Growth vs. Employment Cost Index, Q1 2023

What to Watch in the Next Month 

  • The stagnation in price increases coupled with the strength of the labor market tells the Fed it still has work to do. Minutes from the March Federal Open Market Committee (FOMC) meeting, released in April, revealed that Fed staff economists are forecasting a recession to start later this year, followed by a recovery in 2024-2025.
  • The highly anticipated Senior Loan Office Opinion Survey, published by the Fed, was released this week and showed bank lending standards tightening further as well as demand declining for all types of loans. This portends a slowdown in economic activity for both consumers and businesses and could lead the Fed to pause rate hikes.
  • The next FOMC meeting coincides with the next inflation report and could mean it will be more heavily weighted in June’s policy decision.


Next Tracker: June 13, 2023