Image Source: Pexels

I expected rent and OER to moderate. They didn’t. The CPI rose 0.2 percent month-over-month but fell to 2.5 percent year-over-year.

The BLS reports the CPI Rose 0.2 Percent in August.

Had shelter cooperated, the gain would have been much lower, which is what I expected.

However, rent and owners’ equivalent rent (OER) rose 0.4 percent and 0.5 percent respectively. OER is the price of rent someone who owns a home would pay if instead they rented their own home.

Other than shelter, this was a very tame report. But shelter is over a third of the index.

CPI Month-Over-Month Details

• The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis.
• The index for shelter rose 0.5 percent in August and was the main factor in the all items increase.
• The food index increased 0.1 percent in August, after rising 0.2 percent in July. The index for food away from home rose 0.3 percent over the month, while the index for food at home was unchanged.
• The energy index fell 0.8 percent over the month, after being unchanged the preceding month.
• Medical care commodities fell 0.2 percent and medical care services fell 0.1 percent.

CPI Month-Over-Month Rent and OER

The price of rent and OER rose at least 0.4 percent every month for 33 consecutive months. In June both were up 0.3 percent breaking the streak.

However, July and August were back to the old pattern. This likely kills any chance of a half-point interest rate cut by the Fed this month.

CPI Year-Over-Year

Year-Over-Year Details

• CPI: 2.5 Percent, Down from 2.9 Percent
• OER: 5.4 Percent, Up from 5.3 Percent
• Rent: 5.0 Percent, Down from 5.1 Percent
• Core CPI (excluding food and energy): 3.2 Percent, Unchanged
• Food and Beverage: 2.0 Percent, Down from 2.2 Percent

Energy was down 4.0 percent from a year ago. I don’t chart energy because it is so volatile that it blows the scale on every chart.

The surprise for me was OER which rose year-over-year and also jumped 0.5 percent from a month ago.

After correctly warning against optimistic views for over two year, and correctly so, I am now expecting rent to be very cooperative.

I explained why on September 8, in Year-Over-Year Rent Inflation Is About to Fall Sharply

The Philadelphia Fed All Tenant Regressed Rent index [ATRR] suggests rapid deceleration in rent increases, perhaps even declining.

I think we start to see this in the next CPI report on September 11. If not, then October. This is one of the reasons I have been expecting the Fed to cut 50 basis points this month.

I will put some numbers on a CPI estimate on Monday. I expect to be on the low end of economic forecasts, perhaps the lowest.

As always, I can be easily wrong. The most likely way is to be early once again because this data is very compelling.

My forecast won’t change if ATRR is cooperative as I expect.

Despite a hot shelter component, the CPI year-over-year fell from 2.9 percent to 2.5 percent. That is the smallest rise since February 2021.

The Bloomberg year-over-year consensus was 2.6 percent and my guess was 2.4 percent. The middle was correct.

I told a friend yesterday that I could have easily undercut the consensus by 0.1 percentage points thus increasing the odds that I would beat the consensus estimate, but I really thought rent would be more cooperative.

ATRR leads OER by ~1 quarter. So, expecting results in August appears to be a tad early. Otherwise, this was a very tame CPI report.

Weakening Economy

On September 5, I noted Small Businesses Reducing Workers for the Last Four Months

ADP data shows small businesses with 1-49 workers have been reducing workers for four months. Those with 20-49 workers have shed workers for 7 straight months.

NFIB “Mood on Main Street Darkens” Small Business Optimism Dips

On September 10, I commented NFIB “Mood on Main Street Darkens” Small Business Optimism Dips

The July jump in small business optimism momentum lasted precisely one month.

The McKelvey Recession Indicator Triggered, But What Are the Odds?

In case you missed it, please see The McKelvey Recession Indicator Triggered, But What Are the Odds?

More By This Author: