cpi

CPI came out at 8.6% today year over year. This was higher than expected. Believe it or not, the real issue isn’t gas prices. The real issue is that inflation is becoming engrained in the economy.

I’ve posted this before, but here is CPI broken down over the last 17 months. The left column is CPI. The middle is the part that comes from used cars and transportation. The right is what’s left over. Like Shelter. Food. Etc.

When inflation first started spiking, non-transportation CPI was well under 2%. However, now we can see it’s close to 5% and rising every month.

Given things like Shelter has a looong way to go before it peaks, CPI will continue to be a problem for the market. Which means the Fed is going to be an issue going forward.

CPI was up 8.3% and core CPI was up over 6%. The issue for CPI now is Rents. I discussed this a few months ago: There is a lag between the 14% increase in rents and them showing up in CPI. Well, here they come.

This graph shows you the year over year change in owners’ equivalent rents in CPI.

With inflation in rents running at 5% and rents making up 40% of core CPI, that’s 2% core CPI EVEN IF NOTHING ELSE INCREASES IN PRICE.

I expect inflation will peak soon, but if it says at 4-5% the Fed will still be aggressive. Rents is going to make their job hard since it still will likely increase from here.