November CPI Shows Improvement but Inflationary Pressures Persist
Peter Bernstein, Chief Economist, pbernstein@rcfecon.com, 312-431-1540 x1515
The Current Situation
CPI data for November showed a marked decline in inflation with the overall index rising just 0.1% and the core index up only 0.2%. Year-over-year, CPI inflation declined to 7.1%, the lowest since late 2021 and core inflation dropped to 6.0%. Producer price inflation has also declined notably in recent months, a promising development that may help reduce consumer price inflation in the future.
Still, let us not lose sight of the fact that even if prices stopped rising today, consumers would still be faced with much higher prices than they faced last year. Real relief would require that some of the things that have risen the most in price start to see price declines. On this front, there is both good news and bad.
The decline in inflation in November was not particularly broad-based. Instead, it was driven by a few categories that saw price declines (deflation) including household energy, used cars, motor fuel, and medical care. In contrast, prices of most of the CPI components are increasing faster than the Fed’s target of 0.2% per month. And several components showed higher inflation in November than in October, most notably food at home, rent, and owner’s equivalent rent. Therefore, while the headline numbers show declining inflation, a deeper dive indicates a wide mix of rising and falling prices.
RCF’s Inflation Scorecard
RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8% of the typical consumer’s budget; it has a weight of 8.17 out of a total index of 100 as detailed later in this report.
Our scorecard presents two metrics to track month-to-month price increases. The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation). Because deflation is showing up across more categories, we’ve added a separate measure of the total weight of deflation within the CPI index.
Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%, a monthly rate that corresponds closely to the Federal Reserve’s target inflation rate of 2% per year.
RCF’s Scorecard reveals a much less upbeat view of the November CPI report than indicated by the 0.1% increase in the overall price level. Over half (53.6%) of the weighted CPI components showed rising inflation in November! And nearly two-thirds (64.7%) of the weighted components saw price increases above the Fed’s 0.2% target. Offsetting these inflationary markings is an increase in the weight of CPI components showing deflation. But it remains to be seen if price declines are as persistent as price increases have become.
RCF Inflation Scorecard: November 2022
Analysis of Individual Components of the Consumer Price Index
Sources: Bureau of Labor Statistics and RCF Calculations 1. Inflation direction indicates whether monthly inflation in November was higher or lower than monthly inflation in October. Deflation means prices fell in November compared to October.
Highlights:
- Food prices continue to be a major pain for consumers and given that it is something people buy almost daily, the 12% increase in food-at-home prices over the past year is a constant reminder of inflation. Food-at-home rose 0.5% in November, more than the 0.4% increase in October.
- What goes up sometimes does go down. Household energy, motor fuel, and public transportation prices are all up double-digits since last year but all three saw price declines in November.
- Used car and truck prices fell again in November and are lower now than they were a year ago. Prices for new vehicles were flat in November. Together these price readings indicate an easing of the supply-side constraints that sent vehicle prices soaring.
- Rents and owners’ equivalent rents continue to be big drivers of inflation. They were up 0.8% and 0.7% respectively in November. The CPI measure of rents likely lags changes in the costs for new leases which appear to be coming down. But most renters are living with the higher expense for leases already signed.
One positive is that hourly earnings have been rising faster than prices, helping workers recover some of their lost purchasing power. In November, wages rose 0.6%, well above the 0.1% increase in prices. Since June, wages have risen 1.3% more than prices.
