Real-time data anticipate strength in core inflation
A quick recap following today’s BLS release.
Dotdat’s real-time CPIs anticipated the continued strength in core inflation over September—whether one looks at Headline ex Energy ex Food (the first figure below) or also ex Shelter and Used Cars (the second).
Dotdat’s real-time Core CPI (CPI ex energy and food) rose by 0.5 percent over September, about 10 bps higher than consensus (as of Oct 10th), and compared with the 0.6 percent CPI-U print for the month.
Dotdat’s real-time Core CPI ex shelter and used cars (in addition to ex energy and food) rose by 0.44 percent over September, with a similar acceleration as the official data of ~ 7-10 bps.
The real-time data captured the persistent strength in Housing and Medical Care CPIs as well as the acceleration in Transportation Services over the month while leading the official index by several months for Core Goods.
Dotdat’s real-time Core Services CPI rose by 0.53 percent over September, accelerating from its 0.35 percent rise over August, and in line with the ~ 20 bp rise in the official index.
Dotdat’s real-time Transport Services CPI rose by 1.7 percent over September, accelerating from its 0.1 percent rise over August, and in line with the 1.9 percent official print.
The marked acceleration in the Transportation services CPI over the month was driven by Airfares. Dotdat’s real-time Airline Fares CPI rose by 12.7 percent on a seasonally-adjusted basis in September after marginal increases of 0.9 and 0.1 percent in August and September, respectively, a significant break from its weakness over most of the summer, and consistent with the 5.4 percent acceleration in the official print.
Dotdat’s real-time Headline CPI generally runs below the official headline print, but captures the month-to-month changes in the official index. In line with this track record, the real-time data anticipated the magnitude of the acceleration in headline inflation over September as Dotdat’s real-time Headline CPI rose 40 bps, in line with the 30 bps rise in the official headline number.
Gasoline prices, which generally account for a big portion of the monthly variation in the headline index, slowed the pace of their recent declines in September. Dotdat’s real-time Gasoline CPI fell by 4.9 percent over the month, consistent with the BLS’s 4.9 percent print.
Dotdat’s real-time Core Goods CPI rose by 0.2 percent over September, after being roughly flat across general merchandise categories in both July and August. The official print appears to lag our data by several months, coming in at 0.0 percent for September, finally losing some of the momentum from its dramatic prints in Q2.
The real-time data seem to measure aggregate pricing trends fairly well, consistent with the definition of inflation as a rise in the general price level. That said, high and variable inflation often shows up as surprising or unexpected relative price changes at the product level. Our view is that this explains why even as our major group and aggregate core CPIs have anticipated the official prints in recent months, some of their underlying ELI CPIs have diverged from the official data, at times in opposite directions within the same Major Group.
Put differently, when inflation is stable, people are more likely to have roughly the same anticipation of its future level, and of its implications for a product they buy or sell. When inflation is highly volatile, however, people have different guesses, which shows up as a bias in the ELI data depending on the sample. Many turn out to be wrong. Inadvertently, some end up winners and others losers.
For September, this occurred within Vehicles. While our data anticipated accelerations in used car prices and a softening in new car prices, the official data showed the opposite. But the CPIs for the combined series produced a solid positive monthly print in both the real-time and official data, in the 0.4-0.8 percent range.1
Core goods ex transportation
Outside of the Transportation sector we continue to see signs of goods CPIs softening in September—e.g. Dotdat’s real-time Apparel CPI was flat over August and has since fallen into negative territory with a -2.3 percent print for September
Dotdat’s real-time Household Furnishings and Supplies CPI was down marginally by 0.1 percent in both August and September, but has since moved into positive territory, and continues to run well below the official index. In terms of the underlying ELIs, we continue to see weakness in CPIs for furniture and other household decor items (rugs, wall coverings) while the CPIs for household staples (cleaning supplies, etc) and appliances have held steady or rose in late Q3.
Note, in addition that while our real-time used vehicle CPIs rose over September our sample does not account for some of the idiosyncrasies of the JD Powers data used by the BLS in computing the CPI-U’s Used Car Index, notably the change of model year each September.