Headline CPI rose one tenth in November and the core by 2 tenths with the first being 2 tenths light relative to expectations and the core rate one tenth less. Versus last year, headline CPI rose 7.1% vs 7.7% in October. The core rate was up by 6%, one tenth less than anticipated and down from 6.3% in the month prior. Food prices were up .5% m/o/m and 10.6% y/o/y while energy prices pulled back by 1.6% m/o/m but are still higher by 13.1% y/o/y. With China on the road to fully reopening, expect energy prices to rebound and food prices to stay elevated.
Services inflation ex energy prices were up .4% m/o/m and 6.8% y/o/y and that is a fresh 40 yr high. Rents continued to catch up as OER was higher by .7% m/o/m and 7.1% y/o/y. Rent of Primary Residence was up .8% m/o/m and 7.9% y/o/y. Medical care costs fell .5% m/o/m for a 2nd straight month but are up 4.2% y/o/y. Health insurance for a 2nd month, for reasons stated last month and mentioned again this morning, was key factor in this as prices here fell 4.3% m/o/m. That is a quirk in how this piece is calculated. Up until last month, it was overstated to the upside and now is being overstated to the downside. Auto insurance prices jumped .9% m/o/m and are now up 13.4% y/o/y. Fixing one’s car is more expensive by 1.3% m/o/m and 11.7% y/o/y. Airline fares rose .6% m/o/m and are up 36% y/o/y. Services inflation is ALWAYS persistent and sticky.
On the core goods side, prices receded again by .5% m/o/m and the y/o/y increase is now down to 3.7%. This is the 8th month in the past 9 that has shown deceleration. Used car prices fell 2.9% m/o/m and are now down 3.3% y/o/y. New car prices were unchanged m/o/m but after robust increases in the months prior and are higher by 7.2% y/o/y. Apparel prices rose .2% but after declines seen in the prior two months and they are up 3.6% y/o/y. Prices for household furnishings and supplies rose .4% m/o/m and by 8.3% y/o/y.
Bottom line, the drop in used car prices held to drag core goods prices lower again while the increase in services prices was mitigated by the health insurance calculation as stated. With regards to rents, in the real world they are certainly slowing down but the BLS never fully captured the rise anyway. The net result is still a core rate of 6% which is not going to change what the Fed is going to do tomorrow but likely creates the possibility of a 25 bps hike on February 1st instead of another 50 bps.
The market reaction speaks for itself, with stocks, bonds, FX and gold reacting as they should. We know the 2022 pain points were 40 yr highs in inflation and the most aggressive monetary response in 40 years. Now we’re getting needed relief on inflation and the Fed is close to ending their rate hikes, although will continue on with QT. In 2023, the focus will shift to the economic consequences of living with a higher cost of capital for longer, and that balance sheet shrinkage.
Services Inflation ex Energy y/o/y
Core Goods Prices y/o/y