There was little consolation in the “core” inflation reading (which excludes the volatile, and Ukrainian invasion affected, food and energy components). While a little tamer, it still rose 6.4% year-over-year, its highest reading since 1982 as well.
Continued increases in the housing component of CPI, up almost 0.5% month-over-month, will be a particular concern for the Fed decision makers as this is one of the more ‘sticky’ components. Better news in the used vehicle category that saw a month-over-month decline (-0.2%) for the first time since September 2021; however prices are still up over 41% year-over-year.
The only other category to decline month-over-month was electricity, which fell 1.1% but only following a large spike in January. The food at home category (groceries) saw a notable rise of 1.4% month-over-month, the largest increase since September 2021, as the higher input costs already started to translate to higher prices for consumers.
Increasingly large month-over-month CPI increases that occurred in the period of March to June 2021 will soon be providing a much friendlier comparison for year-over-year figures. For this reason, it is likely that the core CPI may be at, or nearing, its peak. Still, the commodity price shock from the Russian invasion of Ukraine will likely see the March headline CPI even more elevated.
These CPI numbers will no doubt get a lot of attention given the multi-decade highs and how close this report is to the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC), which sets interest rate policy for the US central bank.
As supply and demand may eventually be brought back into balance, it is likely that price pressures should start to subside and that the long-term forces limiting inflation, such as globalization and more importantly technology, will prove stronger than the current inflationary pressures.