Tilley said with the decline in the real estate market, he is hearing from landlords that they are having a more difficult time raising rents. “We’re penciling in slower increases in January and February and March on that shorter lag,” he said. Rent, which has been the biggest inflation driver this year, accelerated, rising 0.5% in August though that’s still down from a flurry of stronger increases. Economists expect rent increases to pull back, based on new leases, but that shift has been slow to filter through to existing leases.
Inflation hit a four-decade high in 2022, prompting the Federal Reserve to embark on its most aggressive campaign of interest rate hikes since the late Carter and early Reagan administrations. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree. In addition to the national CPI indexes, BLS publishes CPI data for U.S. regions, sub-regions, and major metropolitan areas. The metro data is subject to wider fluctuations and is useful mainly for identifying price changes based on local conditions. Get this delivered to your inbox, and more info about our products and services. Though the pace of inflation has sped up in the last two months, it’s still far below the four decade high of 9.1% in June 2022.
On the other hand, criticism concerning the quality adjustments used in the CPI has been widely discounted by economists. Because the CPI Index is so crucial to economic policy and decision-making, its methodology has long been controversial, drawing best shares to buy claims it either understates or overstates inflation. A panel of economists commissioned by Congress to study the issue in 1995 concluded the CPI overstated inflation and was followed by calculation changes to better reflect substitution effects.
What’s the difference between CPI and PPI?
As of September 13, interest rate traders assigned a 97% probability to the central bank keeping the fed funds rate unchanged at a target range of 5.25% to 5.5%. For example, the CPI only measures inflation for U.S. urban populations, thus leaving out the inflation experience of people living in rural areas. It also doesn’t include estimates of how different subgroups are experiencing inflation, such as the elderly or those living in poverty. By creating blanket assumptions of how people across varying demographics are experiencing inflation, monetary policy can’t fully capture or reach the needs of these different subgroups. One such factor is the CPI, as reactionary Fed policies directly impact economic growth, corporate profits, and consumer spending ability.
- For example, lower-income individuals who contribute more gross income towards necessities of shelter and food will skew differently than households with larger disposable income.
- The CPI report is broken down into many subcategories, but the two main ones you’ll hear most about on CPI day are headline CPI and core CPI.
- Shelter inflation has remained hot, but, as Winograd explains, rent prices are known to lag, since it’s standard for leases to last 12 months before rents rise or fall.
- But lowering it the rest of the way to the Fed’s 2% target is expected to pose a thornier challenge.
- The table below represents the CPI basket weighted distribution amongst the eight major expense categories.
It doesn’t cover spending by people living in farm households, institutions, or on military bases. CPI-U is the basis of the widely reported CPI numbers that matter to financial markets.The BLS also publishes the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W covers 29% of the U.S. population living in households with income derived predominantly from clerical employment or jobs with an hourly wage. The CPI is one of the most popular measures of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI), which measures changes in the prices received by U.S. producers of goods and services.
Therefore, the next two CPI readings are likely to inform the path for interest rates. If CPI comes in much lower than expected, then maybe the Fed will forgo another 2023 interest rate hike. That’s the other part of the Fed’s economic goal and if that softens, then that could alter the path of interest rates.
How Is the Consumer Price Index Used?
The Fed’s concern is that even though inflation is falling, services inflation remains high, fueled by rising wages. Wages are currently rising at a 5.6% annual rate according to this tracker from the Atlanta Federal Reserve. Hence, the Fed would need to see evidence of disinflation in services in the CPI reports for the reported months of July and August to have confidence that inflation is beaten. That’s something the Fed is not optimistic that they’ll see, and why the Fed expects another hike in interest rates in 2023. Core prices, which exclude volatile food and energy items and which the Fed watches more closely, are still elevated and rose 0.3%.
August CPI Forecast to Show More Good News on Inflation, Higher Gas Prices Aside
And with fuel and hotel costs elevated, the family decided to forgo their typical summer vacation to Florida beaches or a local campground. And dinner at a casual restaurant costs more than $100, up from $50 to $70. That’s only slightly less than September’s 8.2%, and well above the Federal Reserve’s target rate of 2%. Forecasts expect it to barely dip below the 8% year-over-year rate it’s been floating above since March. Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams.
What To Expect From August’s CPI Inflation Report
October’s CPI Report may show another fairly mild increase in prices overall as energy prices moderate or stabilize. However, the key question for the Fed is how are a broader set of prices are trending. The trend in home prices, or shelter costs, is likely to be decisive in shaping August’s CPI figures. That’s because shelter carries a large weight in the series, at almost 35% in headline CPI. Shelter inflation has remained hot, but, as Winograd explains, rent prices are known to lag, since it’s standard for leases to last 12 months before rents rise or fall.
Forecasters at Pantheon Macroeconomics and Capital Economics believe softer rent increases and a slowing economy and job market in coming months will lead the Fed to stand pat the rest of the year. Because CPI can be volatile, investors should use caution when interpreting CPI data, how to become an algorithmic trader as one or two months of reports do not guarantee a trend. No matter your bias, the market can move in the opposite direction of your expectation. Far from slowing, the pace of core inflation is expected to have risen by another half percent, following a 0.4% gain in September.
Inflation data this week
However, nowcast predictions of inflation, though historically useful on average, have overestimated inflation in recent months. It would likely take very concerning CPI numbers on September 13 for the Fed to look to move rates higher on September 20. That’s after a range of recent Fed statements that signaled some patience before any further rate moves. However, if CPI inflation doesn’t show some disinflation in services and shelter costs, then the Fed may start to prepare the market for a rate increase at its November meeting. If we see reassuring inflation figures, it’s possible that we’re already at peak interest rates for this cycle.
While the CPI may seem like complicated economic data, it impacts consumers in a variety of ways, from capturing their purchasing power to determining eligibility and payment amounts of government programs. The August core CPI reading was 4.3%, down from the July core CPI reading of 4.7%. This is well off the most recent peak from nearly a year ago—when the core CPI reading came in at 6.6% for the 12 months ending in September 2022, which marked a 40-year high in core CPI.
Bureau of Labor Statistics
That’s well below last summer’s peak reading of 9.1%, but it’s higher than last month’s reading of 3.2%. The basket of goods and services used for CPI includes popular items that Americans regularly purchase. The how to buy xpr current cost of the basket is compared to its cost in the prior year, and then multiplied by 100 to determine the percentage. The $100 you just spent at the grocery store bought 4% less than it did one year ago.