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By Wolf Richter for WOLF STREET.
After months of worsening data on CPI inflation, we got still bad, but less bad, data today for April by the Bureau of Labor Statistics. And perhaps it was just another month-to-month squiggle, to be turned around over the next few months, of which we had many. Or perhaps it was a change in trend.
We’ll get to the details in a moment. But in summary, on a year-over-year basis:
Core services CPI – which accounts for about 60% of total CPI – increased by 5.3% year-over-year in April, roughly the same hot pace for the seventh month in a row, and seems to have gotten stuck there (red line).
Durable goods CPI – which had horribly spiked during the pandemic, including by 19% in December 2021 – has been falling by every measure across the board since mid-2022, led by the plunge in used-vehicle prices. In April, durable goods CPI was down 3.2% year-over-year (green).
Core CPI, which excludes food and energy, decelerated a tad to a 3.6% pace (blue line), slowed by the sharp drop in durable goods.
Overall CPI increased at essentially the same pace as in March, by 3.4% (yellow line), with the energy CPI up 2.6% and the food-at-home CPI up 1.1%:
Trends in Core CPI.
The month-to-month changes zigzag up and down, as you can see in the blue line in the chart below, representing month-to-month changes annualized. On this annualized basis, core CPI rose by 3.6% in April from March.
The three-month core CPI, which irons out some of the zigzags, rose by 4.1% annualized, a slower increase than in the prior month:
But the six-month core CPI, which irons out most of the month-to-month zigzags, and which Powell often cites, accelerated to 4.0% annualized, the biggest increase since July, and the fifth month in a row of increases:
Trends in core services inflation.
Core services CPI increased by 5.1% annualized in April from March, so that was hot, but it was less hot than the prior three month-to-month increases that ranged from 5.6% to 8.2%.
The blue line, which shows the month-to-month changes annualized, goes up one month and down the next, and this month was a down-month.
The three-month average core services CPI – now February, March, and April – decelerated to an increase of 5.7% annualized as the January reading of 8.2% dropped out of it.
But the six-month core services CPI, which irons out the month-to-month squiggles fairly well, continued to accelerate and reached 6.0%, the highest since May 2023, back when it was on the deceleration path:
The housing components of services CPI.
Rent of Primary Residence CPI rose by 4.3% annualized in April from March (blue).
The three-month reading rose by 5.0%, the fourth month in a row of 5% increases, after having cooled sharply from the 2022 to early-2023 pace in the 9% range. The three-month pace in April (5.0%) was slightly hotter than in December (4.9%).
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 actually paid in these units.
The Owners’ Equivalent of Rent CPI rose by 5.2% annualized in April from March. This is volatile data with big monthly squiggles, but since August 2023, the low of the range was an increase of 5.1% and the high of the range, a freak jump in January, was 6.9%. April remained in that range.
The three-month OER CPI decelerated to 5.3% as the freak 6.9% spike in January dropped out.
The OER index accounts for 26.6% of overall CPI. It is designed to estimate inflation of “shelter” as a service for homeowners and is based on what a large group of homeowners estimates their home would rent for.
“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.
The ZORI rose by 0.6% in April from March and by 3.6% 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 50% from January 2017, with the ZORI up by 49.7% and the CPI Rent up by 37.4% over the period.
Rent inflation vs. home-price inflation: The red line in the chart below represents the CPI for Rent of Primary Residence (actual rents paid by tenants) as index value, not percentage change. The purple line represents the Case-Shiller 20-Cities Home Price Index (see our “Most Splendid Housing Bubbles in America”). Both indexes are set to 100 for January 2000:
“Supercore CPI” — core services without housing — is whiplash volatile month to month. In April, it rose by 3.4%, after red-hot readings in January, February, and March (blue in the chart below).
The six-month reading – to soothe the whiplash of the month-to-month readings – jumped by 6.5%, a slight acceleration from the prior reading (+6.4%), the hottest since October 2022.
Major Services ex. Energy Services
Weight in CPI
MoM
YoY
Core Services
59%
0.5%
5.4%
Owner’s equivalent of rent
26.6%
0.4%
5.8%
Rent of primary residence
7.6%
0.4%
5.4%
Medical care services & insurance
6.5%
0.4%
2.7%
Education and communication services
5.0%
0.2%
1.6%
Motor vehicle insurance
2.9%
1.8%
22.6%
Admission, movies, concerts, sports events, club memberships
1.9%
0.2%
4.4%
Other personal services (dry-cleaning, haircuts, legal services…)
1.5%
1.1%
4.9%
Motor vehicle maintenance & repair
1.2%
0.0%
7.6%
Water, sewer, trash collection services
1.1%
0.4%
5.3%
Video and audio services, cable, streaming
0.9%
0.6%
4.5%
Lodging away from home, incl Hotels, motels
1.5%
-0.2%
-0.3%
Pet services, including veterinary
0.4%
0.5%
4.9%
Public transportation (airline fares, etc.)
1.1%
0.7%
-4.6%
Tenants’ & Household insurance
0.4%
-0.1%
4.0%
Car and truck rental
0.1%
-4.6%
-10.1%
Postage & delivery services
0.1%
0.4%
3.7%
Core services price level. Since February 2020, the core services CPI has increased by 20.4%. This chart of the core services CPI as index value, not as percentage-change of that index value, shows how the curve of price levels has steepened over the past seven months.
Durable goods CPI.
The durable goods CPI fell by 0.5% (6.1% annualized) in April from March and by 3.2% year-over-year, as the decline accelerated.
New and used vehicles dominate this index, which also includes information technology products (computers, smartphones, home network equipment, etc.), appliances, furniture, fixtures, etc. All categories have been experiencing price declines, as prices are coming down from their pandemic spike that had ended in mid-2022.
From March 2020 to the peak in August 2022, durable goods prices spiked by 23.4%. Since then, they have dropped by 4.5%, having unwound nearly one-quarter of the pandemic spike.
Major durable goods categories
MoM
YoY
Durable goods overall
-0.5%
-3.2%
New vehicles
-0.4%
-0.4%
Used vehicles
-1.4%
-6.9%
Information technology (computers, smartphones, etc.)
-0.1%
-6.6%
Sporting goods (bicycles, equipment, etc.)
0.9%
-1.1%
Household furnishings (furniture, appliances, floor coverings, tools)
-0.4%
-2.8%
New vehicles CPI fell 0.4% in April from March, the fourth month-to-month decline in a row. Year-over-year, the index also fell by 0.4%, the second month in a row of declines.
Since March 2023, the index has barely changed. New vehicle prices, unlike used vehicle prices, have turned out to be very sticky after the 20% price spike in 2021 and 2022.
But the recent declines – documented on dealer lots by massive discounts and incentives on certain models – may have finally broken that stickiness.
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 other products (detailed explanation of hedonic quality adjustments in the CPI).
Used vehicle CPI fell by 1.4% seasonally adjusted in April from March (red); not seasonally adjusted, it dipped by 0.4% (blue).
Used vehicle CPI had spiked by 53% from February 2020 through January 2022. From that peak, it has dropped by 16.8% (seasonally adjusted), having given up nearly half (47.7%) of its pandemic spike. At auctions, wholesale car and truck prices experienced an even steeper historic plunge.
Food Inflation.
Food at home CPI – purchased at stores and markets and eaten off premises – dipped 0.2% in April from March, and was up 1.1% from a year ago. After the pandemic spike, the index is still up 25% from February 2020.
Food
MoM
YoY
Food at home
-0.2%
1.1%
Cereals, breads, bakery products
0.6%
0.6%
Beef and veal
0.1%
7.0%
Pork
0.0%
1.2%
Poultry
-0.6%
0.9%
Fish and seafood
0.3%
-2.1%
Eggs
-7.3%
-9.0%
Dairy and related products
0.1%
-1.3%
Fresh fruits
-1.7%
0.5%
Fresh vegetables
-0.6%
2.3%
Juices and nonalcoholic drinks
-0.1%
3.3%
Coffee, tea, etc.
-0.6%
-2.0%
Fats and oils
1.0%
2.8%
Baby food & formula
-0.3%
5.1%
Alcoholic beverages at home
0.0%
1.6%
Food away from Home CPI rose by 0.3% in April from March and year-over-year by 4.1%, following the price spikes in 2022 and 2023. Since February 2020, the index has soared by 26%.
The category includes full-service and limited-service meals and snacks served away from home, food at schools and work sites, food from vending machines and mobile vendors, etc.
Energy.
The CPI for energy covers energy products and services that consumers buy directly. On a month-to-month basis, it rose for the third month in a row. Year-over-year, it rose for the second month in a row:
CPI for Energy, by Category
MoM
YoY
Overall Energy CPI
1.1%
2.6%
Gasoline
2.8%
1.2%
Electricity service
-0.1%
5.1%
Utility natural gas to home
-2.9%
-1.9%
Heating oil, propane, kerosene, firewood
2.3%
-0.5%
Gasoline prices – 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 in the summer. The chart shows the seasonally adjusted price levels (red) and the not seasonally adjusted price levels (blue), and both rose for the third month in a row:
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The post Beneath the Skin of CPI Inflation, April: After Some Zigs, a Zag. But 6-Month Core CPI Hits 4.0%, 6-Month Core Services CPI Hits 6.0%, Both Highest since mid-2023 appeared first on Energy News Beat.
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