After falling from a YoY growth rate of 9.1% in June 2022 to 6.5% in December, I expect US inflation to fall further in January. My forecast is slightly above consensus on a headline basis, but slightly below consensus on core inflation. Let’s dive in to my latest CPI preview.
Just to check, you are putting OER and rent of primary residence basically unch MoM at 0.7-0.8? Some banks saying rents/new Leases might actually feed through a bit now and have 0.6 ish. Wondering what you think about the lags and if you've looked into how long it'll take for new leases to feed through
Yes, around that level. Given that the CPI's rent based measures and spot market rents have been converging for sometime now, I certainly wouldn't be surprised if some more material signs of disinflation were seen in OER and rent of primary residence, but there just hasn't been any signs of that showing up in the CPI yet - OER was actually HIGHER MoM in December.
While we can gain an understanding of the medium-term direction that OER & rent of primary residence will head from spot market rents (i.e. MoM growth will fall at some point), the nature of how OER & rent of primary residence is measured, means that it acts a bit like a smoothed moving average. As such, and given the current absence of clear indicators of a more significant deceleration from the CPI reports themselves, I am forecasting a modest gradual deceleration as opposed to a major drop-off in any single month.
Given the difficulty in forecasting OER and rent of primary residence and its lagging nature, that's why I also included the CPI and core CPI ex-shelter - I believe that this is where people should be focusing their attention, in order to gain the best understanding of the underlying inflation picture.
Good piece, thanks -
Just to check, you are putting OER and rent of primary residence basically unch MoM at 0.7-0.8? Some banks saying rents/new Leases might actually feed through a bit now and have 0.6 ish. Wondering what you think about the lags and if you've looked into how long it'll take for new leases to feed through
Thanks!
Yes, around that level. Given that the CPI's rent based measures and spot market rents have been converging for sometime now, I certainly wouldn't be surprised if some more material signs of disinflation were seen in OER and rent of primary residence, but there just hasn't been any signs of that showing up in the CPI yet - OER was actually HIGHER MoM in December.
While we can gain an understanding of the medium-term direction that OER & rent of primary residence will head from spot market rents (i.e. MoM growth will fall at some point), the nature of how OER & rent of primary residence is measured, means that it acts a bit like a smoothed moving average. As such, and given the current absence of clear indicators of a more significant deceleration from the CPI reports themselves, I am forecasting a modest gradual deceleration as opposed to a major drop-off in any single month.
Given the difficulty in forecasting OER and rent of primary residence and its lagging nature, that's why I also included the CPI and core CPI ex-shelter - I believe that this is where people should be focusing their attention, in order to gain the best understanding of the underlying inflation picture.
Thank you for reading - I'm glad that you enjoy my CPI previews!