Well. It could have been worse. Inflation is running hot, but not quite as hot as expected. And it was the (for now) usual suspects. Anything remotely tied to energy prices surged. That is the least shocking outcome possible. Airline tickets? Up. Gasoline? Up. But – again – that was anticipated. It was a known known. What is intriguing is what is going on under the surface.
When digging into the numbers a bit, the picture becomes less “inflation surge” and more “mixed picture”. The shelter figures are close to the core readings. Food costs remained relatively contained with food away from home remaining at its (now) typical 3.5%. And vehicle prices have not been ticking higher. They are – in fact – ticking lower. That creates a complicated inflation picture.
With inflation pressures being largely driven by energy costs, the question at the top of investors minds should be what the inflation picture looks like outside of that shock. Enter rent, which popped a bit on the month. That is unlikely to be sustained. There is little reason to believe this was anything other than a slight data anomaly as the real-time indicators point to further pressures to come.
On the owners’ equivalent rent side, there has been a “split” between regions. The Northeast has seen a rebound in inflation pressures – something that matters on the margins. The Midwest has witnessed a bit of a tailwind as well, but to a far lesser extent. And the South and West continue to show signs of downward pressure. The South and West make up far more of the overall OER reading. If they continue to pressure the index lower, it will eventually head in that direction again.
However, there is the harbinger of accelerating “supercores”. These are services provided to consumers outside of the shelter metrics. Some of this is being driven by the cost of insurance and auto repair. But much of it is being driven by surging medical care costs. That is something to pay attention to in the near-term, but it is not something to get overly concerned about in the medium-term.
Generally speaking, this was a not a surprising report. It came with puts and takes, but there was nothing overly shocking. And that is a bit of a relief. There was the “feeling” this report would show something sinister. It did not. That is a relief. Now we wait for the next one.