"Transitory" Inflation Cooling As "Sticky" Heats Up: Here Is The Heatmap From Today's CPI Report

Markets breathed a sigh of relief today when the latest CPI print came in weaker than expected, missing consensus expectations for the first time since October, and prompting economists from Pantheon Macro to declare that "in one line: The surge is over." We doubt it, but first here is the data.

Core CPI inched up 0.1% (0.10% unrounded) mom in August, marking the softest sequential gain since February. This was below consensus expectations and led to the % yoy rate moderating to a still elevated 4.0% yoy clip, from 4.3% previously. Headline CPI rose 0.3% (0.27% unrounded) mom, boosted by a 2.0% surge in energy prices and solid 0.4% rise in food. Headline % yoy edged down to 5.3% yoy from 5.4%.

The winds of transitory inflation became crossed this month:

  • On one hand, used car prices started to see a negative payback after the record-smashing rally over the past year, declining 1.5% mom. The timing is consistent with wholesale used car prices, which began to turn lower in June and are now down 4.2% from the peak through August. Reopening pressures also saw a sharp reversal with lodging prices plunging 2.9% mom and airline fares collapsing 9.1% mom. The broader transportation services sector also fell 2.3% mom, pulled down further by a 2.8% drop in motor vehicle insurance (which reflects seasonal factors that will likely bounce by +2.0% mom in September) and an 8.5% collapse in car & truck rental prices. Together, these components sliced 0.26% from core % mom.

  • On the other hand, there were signs of continued shortage-related pressures as price gains were seen across commodity items. Both new car prices and household furnishings & supplies jumped 1.2% mom in August, recreation commodities soared 1.0% mom, apparel and other goods both rose 0.4% mom, and alcohol rose 0.3% mom. These categories added 0.16% to core, meaning net transitory disinflation this month.

Yet despite the softer core reading, there was continued pressure from a persistent inflation perspective. Both OER and rent of primary residence rose 0.3% mom, the latter improving from its recent 0.2% trend and catching up to the former. If 3rd party subscription-based sources like Zillow, Apartment List, CoreLogic, and YardiMatrix are any indication, OER is set to soar in the coming months.

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