Is Inflation Moving in The Right Direction?
Happy Friday. Brian Manny here with your weekly update. Let’s get right to it. So.. Monday, this week was the 22nd anniversary of 9/11. I can’t believe it’s been 22 years. You know what’s interesting is if you look back at that event. What it did to our country and kind of how it unified us. And unfortunately, I just don’t get the sense that we have the same unity in our country right now regardless of party line, that just the unity is not there. And hopefully we can get back to that one day. But I can’t believe it’s been 22 years since 9/11. It is pretty impactful day on most of our lives.
Tuesday, We got CoreLogic. So this is looking at home prices for the month of July. CoreLogic said the home prices increased four tenths of a percent in the month of July. So really good to see continued progress there in the housing market. Wednesday this week though was the much weighted for CPI report. Let’s take a look at this real quick So CPI is the Consumer price index. This is a gauge of inflation. There’s two primary gauges of inflation. There’s the CPI and there’s the PCE. The PCE is the personal consumption expenditure. The PCE is really more of what the Federal Reserve looks at. But CTI is very highly weighted as well. So it’s definitely important. And this report comes out ahead of their meeting next week, which all of us have been waiting for.
So this is for the month of August. So the headline number was up six tenths of a percent. So the headline number for CPI includes volatile items such as food and energy. So we went from 3.2% increase up to 3.7%. Because we’ve seen an increase of energy and gasoline costs. So not surprised to see that exactly what we anticipated.
So the core rate strips out volatile items such as food and energy The core rate on a month over month basis was only up three tenths of a percent. And it moved from 4.7% down to 4.3%. So the big movers in this right now were going to be used cars. So used cars were down 1.2%. So speaking of used cars, you had UAW go on strike as of last night at midnight. This is over contract negotiations. Depending on how long this strike lasts for, this could be impactful with inflation. We’ll have to wait and see what happens. Hopefully it doesn’t last very long. But if you see a slowdown in the manufacturing of new cars. You could see inflationary pressure on used cars. We’ll have to wait and see what happens.
But in the month of August, used cars were down 1.2%.Motor vehicle insurance. which makes up 3.4% of the core rate, that was up 2%. Energy, gas and food, these are part of the headline numbers, right? These are up 5.6%, 10.6% and 0.2%. So this is why the headline number was so severely impacted. And then you had airline fares. This has kind of been all over the place. This was up 4.9% on a month over month basis. So overall it was good to see the core number come down. Also what we really have to look at because this is so important and makes up such a large percentage of the headline number and just the overall CPI report is going to be shelter. So shelter was up 0.3% and this makes up 43, almost 44% of the core rate. Rents were up 0.5%. So this went from 8% down to 7.8%. Owner’s equivalent of rent was up 0.4%.
So owner’s equivalent of rent is like saying, Hey, if you own a home right now and you were going to rent it. How much would that home rent for? So that’s looking at like anticipated rents going forward and then lodging away from home. This is like the loose cannon. So lodging away from home is like Airbnb, VRBO, hotel costs. Lodging away from home was down 0.3%. You know this has been impactful as well over time. So we’ve looked at this in the past and we’re still really thinking we’re going to see favorable movement in inflation and here’s why. So if we look at this, the yellow line shows inflation numbers for CPI. This is what we’re seeing in the reports right now. And the blue number shows the inflation, I’m sorry, shows the shelter in real time.
So shelter right now, the cost crested really in January of 2022 they’ve come down. And you’ve seen a dramatic drop in the shelter costs and right now they’re going up 3.3% on an annual basis. But the numbers in CPI lag by like 12 to 16 months. So we didn’t see the crest in shelter costs with CPI until January of this year. Right. There was a 1% lag. So now we’ve seen that crest and we’ve seen it start to roll over. So we should continue to see shelter costs reduce in the CPI number, which is going to be favorable for inflation. What’s interesting, if we look at Consumer Price Index and the PCE if we look at the current rate, but we actually factored in true cost of shelter. So instead of saying, okay, we’re 7.3%, if we actually factored in the true 3.3% cost of shelter right now, real time CPI inflation would be at 2.6% and the PCE would be at 3.25. So if we look at real time numbers, inflation is going the right direction. It’s really good to see.
Thursday this week, we also got some feedback from the ECB, that’s a European Central bank. It’s Europe’s version of the Federal Reserve. Christine Lagarde is the president there. She was speaking and dropping hints said, even though they hiked rates that this might be the last time of them hiking rates because they feel like they might have done enough. We’ll have to wait and see what happens. That’d be exciting because global markets are connected everywhere. So if that’s the tone in Europe, it’d be great to see that being the tone here. And then today we got the Zillow home price index. This is for the month of August. Zillow Home Price Index came out and said in the month of August, homes appreciated 0.2%, and their anticipated appreciation across the country is 7% this year.
So really great to see robust housing info. I’m around all weekend. If you have any questions, let me know. If you want to learn how we’re closing purchase transactions in 15 days, call me. I’d love to help you.
-Brian
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