Inflation Continues to Cool
Core and headline inflation have both decreased over the past year, with core inflation now at 5.3% and headline inflation at 4.0%. This article looks at the causes of this cooling and how it reflects a year ago.
Justin Wolfers
Professor @UMichEcon & @FordSchool | Senior Fellow @BrookingsInst & @PIIE | Intro Econ textbook author | Think Like an Economist podcast.
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INFLATION IS CONTINUING TO COOL.
— Justin Wolfers (@JustinWolfers) June 13, 2023
Core inflation was 0.4% in May (meeting expectations), and is 5.3% over the year (down from a peak of 6.6%)
Headline inflation rose 0.1% last month (slightly below consensus) and is up only 4.0% over the year (down from a peak of 8.9%) -
The year-ended inflation rates (both core and headline) are falling at a pretty rapid clip. But realize, that reflects a lotta what happened a year ago. The sharp rise in prices 13 months ago "fell out" of the 12-month-ended rate, and this explains a lot of what happened.
— Justin Wolfers (@JustinWolfers) June 13, 2023 -
The big gap between headline inflation (4%) and core (5.3%) -- as well as their different trajectories -- largely reflects the sharp drop in energy prices, which are down 11.7% over the past year.
— Justin Wolfers (@JustinWolfers) June 13, 2023 -
EGGFLATION CRACKED
— Justin Wolfers (@JustinWolfers) June 13, 2023
"the index for eggs fell 13.8 percent, the largest decrease in that index since January 1951."
Good news: Wholesale egg prices have fallen even more sharply, and more price cuts are on the way. pic.twitter.com/jYrLzAB8Mv -
Shelter prices in this inflation report were right on market expectations, and they grew pretty quickly (0.6% over the month, 8.1% over the year).
— Justin Wolfers (@JustinWolfers) June 13, 2023
Good news: We're pretty confident this will decline in coming months. (Rent in new leases tends to lead all total rent indices.) pic.twitter.com/LTZX302LvB -
The CPI is sufficiently closely watched that the extra decimal places matter. And core CPI was +0.44% in May (consensus was 0.4%), so if anything it's somewhat worse than meets the eye.
— Justin Wolfers (@JustinWolfers) June 13, 2023 -
Don't be too distracted by the low headline inflation print.
— Justin Wolfers (@JustinWolfers) June 13, 2023
Core inflation has run at a monthly rate of 0.4% for each of the past six prints.
Pretty clear it's not rising; pretty clear it's not falling; pretty clear it's above the Fed's target. -
Future inflation looks like a race between:
— Justin Wolfers (@JustinWolfers) June 13, 2023
One-off price spikes receding into the rearview mirror (cars, rent, gas, eggs, etc)
v.
A hot economy supporting broad price rises
The former is evident in headline inflation; the latter in core.
Shelter inflation is the one to watch. -
One to watch: The price of confidential government documents is expected to decline sharply due to a sudden supply glut.
— Justin Wolfers (@JustinWolfers) June 13, 2023 -
A simple test of how credible your favorite econ sources are: Are they switching from emphasizing headline inflation to core (or visa-versa) in ways that just happen to fit a preferred narrative?
— Justin Wolfers (@JustinWolfers) June 13, 2023
If so, they're not trying to inform you, they're trying to persuade you.