Have Inflation And Growth Peaked?

The charts below show why median yearly CPI and the quarterly average of core CPI may have peaked even though easier comps are coming. The first chart uses the NY Fed’s underlying inflation gauge to predict lower yearly median CPI in the next 15 months. This has an R squared of 65.3%. The bottom chart uses yearly GDP growth to predict quarterly core CPI for the next 6 quarters. This has an R squared of 67.1%.

Big Underlying Changes To Inflation

The core and headline CPI inflation data points make it seem like there weren’t many changes in this report, but there actually were. Firstly, the difference between core and headline CPI fell from 0.7% to 0.5%. That’s because energy inflation increased from -4.8% to -4.2%. That’s despite the comp going from 4.8% to 8.9%. The comp is November is 3.1% which means the gap will close further.

The headline of this inflation report is that shelter inflation fell and medical care services inflation soared. Shelter inflation fell from 3.5% to 3.3% which is a big deal because of its high weighting. Primary rent inflation fell from 3.83% to 3.74% and owner’s equivalent rent inflation fell from 3.4% to 3.32%. These declines and the weakness in lodging away from home inflation mitigated the impact of the spike in medical care services inflation. Hospital services inflation rose from 2.08% to 3.46%. Health insurance inflation increased from 18.8% to 20.1% which is the highest reading since at least 2008. This caused medical care services inflation to increase from 4.4% to 5.1% which is the highest rate since August 2016. Those two are joint cycle highs.


Central banks have done coordinated rate cuts that have gotten investors excited about a potential 2020 synchronized expansion. We might already be seeing the beginning signs of this occurring. On the other hand, inflation might have peaked. Shelter inflation was the lowest since May. Medical care services inflation certainly isn’t moderating as it was the highest of this cycle due to the big increase in insurance inflation.

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