INFLATION WATCH - still under control, but higher than Summer and hitting some worse than others

We got another update on the inflation picture this week, and I'd categorize it as "not great, but not awful."

JUST IN: US inflation was +3.7% y/y in September, a tad higher than expected and the same as August.

High rent accounted for over half of the increase. Gas prices were also up.

The good news is inflation growth slowed in September (up 0.4% for just the month v. 0.6% in Aug)

— Heather Long (@byHeatherLong) October 12, 2023

Digging deeper into the report, it shows that gas prices weren't up as much as they were in August. And the always-key "core" inflation rate also continued to be around that 4% figure.

On a "core" basis, which strips out the more volatile costs of food and gas, prices in September climbed 4.1% over last year — a slowdown from the 4.3% annual increase seen in August. Monthly core prices rose 0.3%, on par with August. Both measures met economist expectations…..

The shelter index was the largest factor in the monthly increase in core inflation, increasing 0.6% month over month — higher than August's 0.4% monthly jump. The index rose 7.2% over the last year, down slightly from August's 7.3% annual gain.

The indexes for rent and owners' equivalent rent rose 0.5% and 0.6% on a monthly basis, respectively. Owners' equivalent rent is the hypothetical rent a homeowner would pay for the same home.

I'll add that the gain in energy prices seems likely to reverse in October’s CPI report, as AAA reports that gasoline prices are down nearly 20 cents a gallon compared to this time in September (and 34 cents per gallon in Wisconsin).

In another positive sign, food prices have continued to be in check, up 0.2% for the 3rd straight month, and food at home (aka groceries) only up 0.1% in September, and 2.4% for the last 12 months. Take out the increase in shelter prices, and the CPI increase over the last year is right at the Fed’s 2.0% target.

Which indicates that there is a disproportionate strain being thrown onto renters vs people in fixed-rate mortgages (who aren’t paying 7% more for their home in 2023). This also helps explain how we can have packed Madison eviction courts at the same time that Dane County has a sub-2% unemployment rate, and continues to add the most jobs and people out of any county in Wisconsin.

This tweet and accompanying graphic by the Chief Investment Strategist at Charles Schwab really illustrates how two-sided the inflation situation has been over the last year.

CPI’s categories pic.twitter.com/8w8SuBUerK

— Liz Ann Sonders (@LizAnnSonders) October 12, 2023

Things like fixing your car, paying for insurance and paying your rent are things that a sizable number of Americans notice on an ongoing basis, and are annoyed by the bills that they have to pay. And they aren't as likely to notice that prices in other items have leveled off after the big increases in the previous couple of years. 4% inflation is still a lot better than 6% unemployment, but I also note that the last two months have seen inflation outpace the increase in average hourly wages, and that needs to reverse in October (probably will, but still).

It would be nice if we had a Federal Reserve that recognized raising credit costs and limiting housing options is a much bigger economic problem that inflation in late 2023, but given the Bubble that those bankers live in, those higher rates are also likely something we have to deal with for at least the next several months. So maybe doing something to cut down on land/property speculation and helping people stay in their homes and afford child care and insurance costs will be what's needed in the meantime, before we see consumers reach their breaking point and cause a cutback in the real economy.