Well, this is a CPI report to forget. The Iran conflict certainly had an impact on the headline print, but that was fully anticipated (it was not a secret that energy prices moved up on the month). But, there are also other oddities and knock-on effects to keep in mind when looking at the inflation print. Electricity broke out to the upside along with airfares and fruits and vegetables. All of those are at least partially related to the increases in energy prices (fruits and vegetables require cool transit). There were relatively few bright spots in the print for those looking for solace that underlying inflation pressures are waning.
One of the few pieces of the inflation picture moving in the correct direction was rent. It continued to disinflate, landing at a relatively tame 2.6%. That is a positive, and the numbers should continue to move lower over time as well. Rent – prior to the Covid induced surge – typically ran below the Zillow tracker and above the Apartment List data. If that happens, rent would be approximately another 1% or so lower.
When it comes to OER, it is time to ignore it. The upticks this month were largely due to the data issue from 6 months ago (one of the government shutdowns). That caused data to not be collected, creating a sort of “air pocket”. In other words, simply ignore this print. There is little to no value in it.
But there are also signs that the supercores are not performing as expected, and that could be problematic for future readings. If inflation is going to be sticky, that is where it will show up first. And it is beginning to show up.
To be fair, this report was largely in line given the things that we knew were coming. Energy prices were not unexpected, and the OER issues were known. But there are other, disconcerting parts of the inflation print – particularly the supercores. Those point to further inflationary pressures during the summer doldrums. The saving grace may be the return of shelter disinflation in coming prints.