The price of gasoline rose 10.6 percent, rent another 0.5 percent, shelter, 0.3 percent, and new cars 0.3 percent leading the way for a 0.6 percent increase in the CPI in August. 
I repeat the core key theme for something like two years now. People keep telling me rents are falling, I keep doubting. The doubters have it correct again. If it’s any consolation for the “rents are falling” crowd, the cost of shelter only rose 0.3 percent in July, the smallest increase in 18 months.
However, rent of primary residence, the cost that best equates to the rent people pay, jumped 0.5 percent. Rent of primary residence has gone up at least 0.4 percent for 25 consecutive months!
All these “rents are falling” projections have been based on the price of new leases, but existing leases, vastly more important, keep rising, and this month rents jumped another 0.5 percent. The amusing thing now is the cost of new leases is rising again.
With rents out of the way, Let’s tune into the BLS Report for the details.
CPI Month-Over-Month
- The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.6 percent in August on a seasonally adjusted basis, after increasing 0.2 percent in July,
- The index for gasoline was the largest contributor to the monthly all items increase, accounting for over half of the increase.
- The shelter index rose for the 40th consecutive month.
- The energy index rose 5.6 percent in August as all the major energy component indexes increased.
- The food index increased 0.2 percent in August, as it did in July. The index for food at home increased 0.2 percent over the month while the index for food away from home rose 0.3 percent in August.
- The index for all items less food and energy rose 0.3 percent in August, following a 0.2-percent increase in July.
- Indexes which increased in August include rent, owners’ equivalent rent, motor vehicle insurance, medical care, and personal care.
- The indexes for lodging away from home, used cars and trucks, and recreation were among those that decreased over the month.
CPI Shelter
Shelter Notes
- Shelter comprises 34.81 percent of the CPI
- Rent of primary residence is standard rent (not owner occupied), unfurnished without utilities.
- Owners’ Equivalent Rent (OER), is the estimated price one would pay to rent one’s own house, unfurnished and without utilities. It is the single largest CPI component at 25.62 percent.
- The shelter index increased 7.3 percent over the last year, accounting for over 70 percent of the total increase in all items less food and energy.
CPI Year-Over-Year
Year-Over-Year Details
- Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment.
- Year-over-year the CPI has risen for two straight months.
- The all items less food and energy index rose 4.3 percent over the last 12 months.
- The energy index decreased 3.6 percent for the 12 months ending August
- The food index increased 4.3 percent over the last year.
- Shelter is up 7.3 percent from a year ago.
Sorry folks, as I state repeatedly, rent prices are NOT coming down, despite such reports for as mush as two years.
I will accept that the price of new leases is falling, but most renters do not move. Would you move to save $50 a month? $100? It’s not worth the hassle unless the new place is cheaper, nicer, and more convenient.
Most analysts have been expecting the price of shelter to come down. I have not been in that camp and still aren’t although we are getting closer to smaller increases.
The idea that the price of new leases leads the way for existing leases has certainly not lived up to its deceleration billing.
The Fed Commits to a 2 Percent Inflation Target, Carefully
On August 25, I noted The Fed Commits to a 2 Percent Inflation Target, Carefully
Let’s see how carefully it can thread this needle.
Powell’s Warnings
Powell stated: “As is often the case, we are navigating by the stars under cloudy skies.”
And to that I would add, using tools like inflation expectations proven to be totally worthless.
For discussion of inflation expectations and Biden’s energy goals guaranteed to be inflationary, please see Should the Fed Declare Defeat and Move On?
inflation is always cumulative. hat tip james grant. any talk of deflation is quite silly. we’d need one hell of a everything must go sale price marked down 50% from pre plague years. forget 10 or 20 years ago.
what does the benjamin in your wallet buy you in your life, today, compared to just a few years or decade ago. the rest is basically hooey. we all spend on different things at different parts of our lives. rents in working hoods in my boro are literally being lowered. i imagine the airbnb ban will make it even better.
Politicians keep raising hourly rates thinking that doing so has no affect on inflation or general living costs. They are grossly wrong.
As usual, California is on the wrong way lead. They just passed a minimum wage for food servers of $20/hr. Now they are working on a minimum hourly wage of $25 for health care workers.
UPS drivers will get up to $49/hr after 4 years in their latest contract. Pilot’s at the major airlines now make $350k annually w/o overtime. MD’s make $250k on average and many make in the millions. Tech kiddies at Google/FB/MS, etc. start at $150k raw out of college and a good number make $300k+.
Meanwhile, SS recipients hope for a measly 5-6% increase, which doesn’t compensate for economic increases for food, housing and cars that go into the 15-20% range.
This can’t go on!
The correct way to view inflation is how many hours do you work today compared to the chosen time-frame. This takes out the silly idea that the dollar is a good measure. It’s this hours-of-work-required-to-pay which is the true measure.
The trend confirms trueflation.com that also indicates inflation stopped its falling trend months ago.
The CPI y/y dropped nonstop from 9.1% to 3%, without one counter trend. The
downtrend is strong. The first counter trend, the first stopping action is : 0.7/6.00 = 10%.
The CPI might cont down, at least for a while.
Stepping outside the box here…
We count non-payment of rent by owners as GDP and it makes 25% of inflation data. Thinking hard about that.
So if you have no mortgage you are saving on payments and you turn around and spend that on something else and that is counted in GDP most likely. So Owners Equivalent Rent is double counted in GDP.
Meanwhile, some home owners refinanced at 3% and their actual payment is less that OER, but it is not counted.
And they do not subtract cost from OER which includes not depreciation, but appreciation. Some people are living free when you run the cost analysis, but never mind that fact.
GDP and CPI do not reflect reality.
And we could go into car prices vs CPI car inflation again.
Too many numbers going in too many crazy directions. It’s impossible to reason out much of anything with any degree of certainty.
GDP AND GDI IS JOKE. i’m shocked mish wastes so much effort on the idiocy of them. i don’t even read the analysis or graphs of them. total waste of effort. GDP counts mal investments like over priced fighter jets that don’t work…………
OT:
Mish, I know you are skeptical of self-driving cars.
I thought you’d find this interesting, especially the part where they ask drivers to turn auto drive features off, because someone mysteriously painted a yellow line on the road which can mess these features up.
link to upi.com
It’s not really off topic. People are banking on AI or automation of some sort to solve the worlds problems. MGM casino shut down because someone hacked the casino. Hacking has shutdown so many things over the years that whatever benefits you get from it will be crushed by hackers.
I wonder how much money MGM has lost today.
link to cnbc.com
Assuming they can get the AI to drive better than a 15 year old on their driving test, It’s only a matter of time until somebody hacks a self driving car and goes on a rampage in it, or just loads it up with a fertilizer bomb and sends it downtown.
I expect the appetite for self driving cars will swiftly abate.
I’ll take the opposite view on that.
The population is rapidly aging and the average age is increasing. Soon tens of millions will be too old to drive (ie can’t get a license) and also too old to take public transit (still requires a lot of walking). Self driving cars for people like that will be a god send enabling them to remain in their homes.
Same for parents who want to send their kids to/from school but don’t have time to do the drive themselves. The car will take the kids and then return home for the parents to drive to work.
lyft and uber much cheaper for geezers weekly trip to physical therapy. all supermarkets deliver now.
Rising rents creates more homelessness.
Time to invest in fenty futures.
The decrease in O/N RRPs increased liquidity. The increase in MMMFs increased liquidity (driven largely from bank-held savings). These two factors absorbed much of the Treasuries issuance. And that is the probable reason why Atlanta’s GDPNow is over 5%.
The increase in the demand for money was largely confined to saved DDs being shifted into bank CDs.
link to richmondfed.org
Mish: Great article, thanks!
Christoball: This is a fantastic comment and synopsis! The Fed and others don’t want anyone thinking about this, but I would like to see it spread far and wide!
I read somewhere that EY-Parthenon’s Daco estimated that every $10 move in oil is worth a .02% increase in annual inflation.
We could ease this cost push inflation better if we cancelled the ban on domestic drilling.
The labor data is manipulated by these union strikes. The interest rates are not stopping people from racking up credit card debt while personal savings rate is under 5%, which means people are struggling to make ends meet.
Punishing the little guys is not working!
Also, oil companies make big deposits in regional banks? Then banks use these deposits to make loans with. So the banks have less supply of money coupled with credit derivative risks that is expensive to hedge so the banks are in trouble again if the Federal Reserve raises rates again.
This is a supply side issue which is the fault of this administration and Congress. The Federal Reserve can only fix demand side issues which means they don’t have control of this problem.
Incorrect. The US cannot impact world oil prices much (unless we release more of the SPR.)
First: there is no general ban in place on domestic drilling. Just a few select drilling bans in some sensitive areas which amounts to very little in the overall picture.
Second: the oil companies have very little intention of spending more on capex. They have been intentionally decreasing capex for a decade now, because they see no reason to expand their reserves much beyond what they already have. They are now focusing on simply producing what they already have discovered and maximizing cash flow and profitability.
Third: the US is already producing more oil this year than it has in a long time. Close to 13 mbpd. But that is in a worldwide market of over 100 mbpd. The reality is that we cannot add much more than that and so we cannot impact worldwide oil prices in the same way that OPEC+ can.
Fourth: Oil companies are not making big deposits in regional banks. They are using their cash flow to pay down their debt, buyback shares and increase dividends.
sir, you are a wealth of knowledge. much appreciated. and thanks again for wonderful stock ideas. wish there was more from mish and company on trading ideas.
There is no ban on domestic drilling. We are projected to produce a record amount of domestic oil in 2023.
“In our January 2023 Short-Term Energy Outlook, we forecast that crude oil production in the United States will average 12.4 million barrels per day (b/d) in 2023 and 12.8 million b/d in 2024, surpassing the previous record of 12.3 million b/d set in 2019.”
link to eia.gov
“All these “rents are falling” projections have been based on the price of new leases, but existing leases, vastly more important, keep rising, and this month rents jumped another 0.5 percent. The amusing thing now is the cost of new leases is rising again.”
Makes 100% sense. With what’s soon to be an extra 10M illegals running around in the US with caravans more on the way, why would rent fall?
Yet again, a missed opportunity by Mish and every other politically correct economist on the face of the earth. Is it the only cause? Of course. Can I quantify the %. Again, of course not. But do I know it in my bones to be trued? Absolutely.
Outside of loving “cheaper” labor to run your business say running a union shop or right to work state, there’s zero upside to open borders. The negatives are orders of magnitude greater.
the us colonies and usa had open borders for 300 years until ww1. opened em back up again in 1960s. your grasp of historical reality is fantasy and erroneous.
Inflation is going to stay as it is the policy. The governments spending way beyond revenues is inflationary. The Fed raisins rates hurts consumers and small business but it doesn’t prevent government excess as the Fed can buy the paper and politically, deficits and interest on the debt don’t have consequences that are felt by the political class.
Stock buy backs are a waste of capital and should be taxed similar to income. The reason for them is primarily to reward insiders with stock compensation. The economic reason for them is tax avoidance.
Stagflation is the result.
I think we’ve been looking at the dollar in the wrong direction. Rather than worry about a dollar alternative that mostly never arrives, the US may find that the dollar is a crushing burden that they must support with high interest rates and pressure to cut spending that looks like political suicide amidst a recession – and they may have to plead with other nations to stop dumping Treasuries. I don’t see any escape from agony in this.
Time for my monthly Compound Dollar Devaluation Report, formerly called Compound Inflation Report.
Inflation is a Euphemism for Dollar Debasement. The dollar has become worth less, and requires more of them to purchase the same item. The term inflation reminds me of the Crying Indian Add in the 1960’s that put the onus on the individual to stop pollution by not littering. The problem was much bigger than an occasional person discarding a gum wrapper somewhere other than the trash can. It was a systemic problem. Money now is like in a grain surplus stage with more credit issued than essential goods to purchase. There are enough essential goods and actually no shortages. There is just a disruption of the equilibrium between the two. The problem is we cannot pay farmers not to grow money. We can only pay savers not to spend money by higher returns on savings. Saved money is not lent out but is removed from circulation.
CPI is only calculated Annually to minimize the appearances of a devaluing currency. If August 2023 Compound Dollar Devaluation were calculated Biennially it would be 12.3%, stating that dollars devalued 12.3% and are worth that much less than in August, 2021. This is a .33% rate increase from last months biennial Compound Dollar Devaluation of 11.97% . If August 2023 Compound Dollar Devaluation were calculated triennially, it would be 18.26%, stating that dollars devalued 18.26% and are worth that much less than in August, 2020 This represents a .25% rate increase from last months triennial Compound Dollar Devaluation of 18.01% . PRICES ARE STILL GOING UP!!!!
CPI does not truly reflect the sky rocketing prices of necessities. CPI often minimizes the true affects of inflation for political reasons and to lower COLA increases for Social Security and Public Employee Pensions.
Once again inflation is not simple inflation but is compound inflation. Triennial Compound CPI is 12.14% greater than FED targeted 2% CPI goals for this same 3 year time period.
It would take nearly 6 years of ZERO PERCENT CPI to arrive at what the FED’s targeted 2% CPI would have produced with July 2020 as the base month. I call this important number the “ZERO PERCENT CPI NEUTRAL AFFECT ADJUSTMENT INDICATOR”.or ZPCpiNAAI for short, .HaHa.
It will be interesting to see the 4 year Compound Dollar Devaluation figures going forward starting February 2024. They will be a doozy if Currency debasement is not contained.
Unregulated Non Banks have taken borrowed money that was too cheap to pass up and used it to financialize our economy through speculation and stock buybacks rather than capital investment. It is estimated that 5% of GDP is spent on stock buybacks rather than wages, factories or infrastructure. Corporations borrow money for stock buyback with the intent of stabilizing stock prices when insiders with stock options cash out.This greed does absolutely nothing for humanity.
Much of inflation is speculative, and non productive. Whatever it takes to remove the speculative component out of the equation, and enhance the productive component in our economy is in order. The FED is reigning in unregulated Non Banks by raising interest rates, and making the price of greed more expensive. Keep up the good work.
Boom times are when society leverages borrowed money and lives beyond its means. Recessions are when society lives within its means. Boom times and inflation only benefit those with access to borrowed money first, everyone else suffers.
The cola, at most, will be 3.5% for 2024.
The 18.3% (6.1 + 8.7 + 3.5) increase in just three short years is huge and will help lead to the SSTF running out of money before 2033, as most recently projected.
Just like the GR moved the “in the red” date forward 4 years, I expect the same to happen. Don’t be surprised by announcement in the next 2-3 years that 2030 is the new date.
Time is running out, Biden et al.
Compound those annual adjustments (19.3%) and it’s slightly worse than you think!
fantastic analysis. keep em coming regularly. also let’s remember there is productive borrowing, like building RR or businesses that payoff more than cost of capital. and there is bad borrowing, like financing proxy wars around the globe for the past 60 years. which benefit a few dictators and few C suite twats at military industrial firms, and wall street banks and juicy pensions for flag officers and union government workers feds to locals……..
And don’t leave out all the employees and shareholders of those non-productive companies. They exist in volume in every state and that’s exactly why nothing can change – who’s going to vote to lose their perks? We were warned about the military industrial complex decades ago and the tentacles grow longer every year.
Solidly in the “rents aren’t falling, but they’re not rising very fast” camp. We price a few apartment deals each week, so we get to see where people are pricing today vs where they’ve been pricing. The bumps from current rent rolls to market are getting lower, but it’s a market by market thing.
We all know rent isn’t measured well, and homeowner imputed rent is kind of a crappy number (it’s a survey of what people *think* their rent *should* be, not what it is.) That said, looking at Invitation Homes and other single family rental companies, it’s fair to say that single family home rental growth is still running strong, but apartment rental rates are showing a fair bit of weakness. Overall, we know rent inflation is mismeasured. It’s still the multi-tenant portion that drives the majority of the inflation figure.
As far as the idea that “the idea that the price of new leases leads the way for existing leases…”, that’s just the math. Renewal rates in the multi-tenant apartment space tend to run around 50-60%, so it takes a few years for rental rates to normalize around stabilized market lease rates. Even then, renewal rates can be either higher or lower than new lease rates, depending on local market conditions. If new leasing is weak, you might keep renewal rates below market to avoid vacancy. If new leasing is tight and you’re not worried about vacancy, you might price renewal rates above new lease rates (there’s a cost for tenants to move, after all, so why not capture a portion of that ?).
Rent of primary residence is not homeowner imputed rent. The latter is OER.
I specifically called out rent of primary residence, of far less importance to the CPI than OER, but both tracking nearly the same.
Rent of primary residence is the real deal, based on actual rents, how accurately we can debate but likely a reasonable number.
i’ve been a long time, landlord and long time tenant too. weird perhaps, but not unheard of. makes me see both sides quite nicely. in working class hoods, rents going down in 3 cities i am very familiar with as both landlord and tenant.
Exactly as I predicted, we would have a short reprieve in inflation and then we’d go right back up. How did I foresee this, was it a crystal ball? Nope. It’s the fact that millions of millenials are the new boomers entering family formation age and ravaging housing and consuming en masse but it doesn’t stop there. Throw in boomers leaving the labor force and taking their knowledge, skills and productivity with them and the result can be only one thing: inflation.
You’d think robots or AI or magic miracles would fix all of this but it hasn’t and I doubt it ever will. We are just at the start of this too, by 2030 all boomers will be over 65 and zoomers will be a bit older and wanting to settle down too.
Neither the Fed, Trump, Biden, or magic deity/politician/congress is going to pay the bills for you so plan accordingly.
The problem with the theory is that productivity recently has actually improved. I myself am a little surprised by that, since it typically doesn’t improve at the later stages of growth. The suspicion is that inflation is a two factor problem. Easing supply constraints bring down supply-shock inflation, but residual monetary effects remain. You get two different factors running in different directions, so as the one has faded the other has become more visible.
I am not so sure about that, airline pilots negotiated a 40% raise, how are they being more productive? They fly the plane the same way as before. UAW may strike if they don’t get their 40% raise and I doubt they will be more productive, they actually want to work one day less per week. Ditto for UPS workers and others asking for more money.
Perhaps AI has improved some things but long term there are too many things AI can’t do like build/service cars and service planes.
What is the percentage of UAW and Pilots in the population?
Don’t know but I know when I doctor retires it creates a huge void because it take 8+ years to become an MD and if 1 million retire over the next 7 years it’s a long road ahead.
Same for other professions but the lag time varies. The days of “dumb” jobs are coming to an end, everything is digitized, electrified, and financialized. If you don’t have these skills it’s the poor house for you.
I don’t see how productivity can increase and keep increasing while the work ethic in the workplace continues to decline. This is anecdotal admittedly, but I see and am told by all my contacts, that the idea of being useful at work is dying – especially amongst the young.
Most businesses (small and medium) do not have the volume to justify much automation so are increasingly at the mercy of the large corporations. I don’t have any contacts there so don’t know if they more than make up for this.
It’s the base effect. CPI in August 2022 was 0.1%, so anything over that in August 2023 is going to make it appear inflation is rising. There will be several more months of this as falling gas prices a year ago kept CPI very low.
“Base effect is a term used in economics to describe the distortion in the inflation rate caused by comparing the current price level with the price level in the same month a year ago. If the inflation rate was low or high in the previous year, it will make the current inflation rate appear high or low respectively”
We need higher interest rates and make sure the Wall Street Clowns understand that higher rates are here to state with no pivots for a very long time (10 Years)? Speculation continue to be rampant and due to all that money still sloshing around from the round of subsidies and free checks to everyone including Angus the cat…