The string of 33 consecutive months of rent rising 0.4 percent or more is finally broken.
Month-Over-Month Synopsis
- CPI: -0.1 percent
- CPI excluding food and energy: +0.1 percent
- Rent: +0.3 percent
- Owners’ Equivalent Rent OER: +0.3 percent
- Food at Home: +0.1 percent
- Food Away From Home: +0.4 percent
- Medical Care Commodities: +0.2 percent
- Medical Care Services: +0.2 percent
- Energy: -2.0 percent
- Gasoline: -3.8 percent
Groundhog Day Ends at 33 Months
Owners’ Equivalent Rent (OER) is the single highest component in the CPI with a weight of 26.69 percent. OER is the price one would pay to rent their hose if they did not own it.
Rent of primary residence has a weight of 7.62 percent.
Both broke a string of 33 consecutive months of rising at least 0.4 percent. We are now likely to see a string of months where 0.3 percent is the high, not the low.
I expected rent moderation to start last month, my comments then:
This marks the 33rd consecutive increase of at least 0.4 percent for both.
I expected a flat CPI this month with rent and OER pulling back a bit. Had they fallen, we would have had a negative CPI.
The “rents are falling” (or soon will) projections have been based on the price of new leases and cherry picked markets. But existing leases, much more important, keep rising.
Only 8 to 9 percent of renters move each year. It’s been a huge mistake thinking new leases and finished construction would drive rent prices.
Most leases renew in May through August. I expect rent to moderate soon.
For over two years, analysts expected rents to moderate. I was not in that camp until last month, based on timing of leases.
Moderate, in context, means the rate of increase in rents.
Food Away From Home a Sore Spot
Food away from home rose another 0.4 percent. Food at home rose 0.1 percent.
The good news regarding the price of food is likely over. There never was much good news on food away from home.
Food at home is more important. It has a CPI weight of 8.05 percent vs food away from home at 5.34 percent.
Expect more people to shun eating out. But if wholesale prices rise, as I expect, restaurants will be limited in how they can attract business.
McDonalds bargain meals are not a bargain to say the least. The price of flavored coffee is absurd, and expected tips are ridiculously out of hand.
CPI Month-Over-Month Energy and Gasoline
Good news on the energy front was universally expected. Economists have figured out how to read AAA gasoline prices.
Energy is 7.00 percent of the CPI. Gasoline is just over half of energy at 3.65 percent.
Unless there is a flare up in the Mideast, a slowing economy rates to cool the energy component of the CPI.
CPI Year-Over-Year Percent Change
Year-Over-Year Numbers
- CPI: 3.0 Percent
- CPI excluding food and energy: 3.3 Percent
- Food and Beverages: 2.2 percent
- Rent: 5.1 percent
- OER: 5.4 Percent
- Energy: 1.0 Percent, not shown because immense volatility distorts the chart.
CPI Year-Over-Year Percent Change Medical Care
Medical care commodities are up 3.1 percent from a year ago. Medical care services are up 3.3 percent from a year ago.
With aging boomers and their increasing need for services, I expect this to become a major issue.
Medical care rates to put upward pressure on the CPI.
CPI Year-Over-Year Percent Change Food
Food at home is up 1.1 percent from a year ago. Food away from home is up 4.1 percent from a year ago.
I believe both are going to put upward pressure on the CPI.
CPI and PCE Year-Over-Year Percent Change
CPI vs PCE
Year-over-year the CPI is up 3.0 percent. Core CPI, excluding food and energy is up 3.3 percent.
PCE stands for Personal Consumption Expenditures. The PCE price index is the Fed’s preferred measure of inflation. PCE for June is not yet posted.
The major difference between the two indexes is CPI counts only those items directly paid by consumers. PCE counts indirect items such as Medicare and company health benefits.
As a result, the CPI overweighs shelter relative to PCE while PCE overweighs medical expenses relative to the CPI.
Flawed Measures
Neither the PCE nor CPI directly include the price of homes making a mockery of both indexes for anyone looking to buy.
Both indexes are very flawed, as I see it. Also ask anyone looing to buy a home, anyone who pays their own health care insurance, and anyone struggling with student debt.
The Fed defines stable as rising at a 0.2 percent pace, month after month. It’s ridiculous.
Looking Ahead
The economy is weakening. Energy and rent will put downward pressure on year-over-year inflation.
Food and medical are likely to put upward pressure on the CPI.
Since shelter is the most important component, so expect further moderation in the year-over-year numbers.
Decline in Year-Over-Year Inflation is Transitory
The short-term picture looks pretty good. But don’t expect miracles. Long term inflation pressures are immense.
Tariffs are inflationary. The budget deficit is inflationary. Medical care needs due to demographics are inflationary. The end of just-in-time manufacturing is inflationary. Onshoring is inflationary. The need for minerals for batteries is inflationary.
For years, the Fed had global wage arbitrage at their backs. That has ended and a strong gale of inflationary pressures is now blowing in the Fed’s face.
Recession Has Begun
On July 8, I stated Weak Data Says a Recession Has Already Started, Let’s Now Discuss When
Weakness Everywhere
There is weakness in housing (new home sales, existing home sales, and starts at the lowest in 4 years), consumer spending, manufacturing (both durable and nondurable good), jobs data (constant negative revisions, QCEW, major survey discrepancies, quits, and a rising unemployment rate), and finally we have major unexpected ISM Services in Contraction.
All of the above items are hard data other than the services ISM.
There is no savior on the horizon this time. The Fed rates to be inactive until it panics in September and that will be much too late to stop a recession that started in May or June.
The recession will cool energy and rent is cooling on its own.
For more details and discussion as to why I think a recession has started, please see the above link.
Near-term, the inflation outlook is good, but long-term isn’t. The Fed will struggle with this for a long time, and they won’t understand why.
“The Fed defines stable as rising at a 0.2 percent pace, month after month. It’s ridiculous.”
It is a debt based monetary system, with money created by debt creation, which comes with interest.
Disagree that there is a recession or one has started. CFNAI-MA3 actually went above 0 in May and June. It would be odd to get a recession when unemployment is below 6%. Privately the Fed has internally stated in meetings that they can live with 5-6% unemployment provided the economy is still growing.
Anyone looking at Tax receipts withheld? They crashed 42% year over year in June 2024. I would say something is about to hit the fan.
A weakening US economy does not mean that inflation will subside in all areas.
Commodities are priced globally. If global demand for wheat, coffee, cocoa etc exceeds supply then the price of those things can increase substantially regardless of what the US economy does.
One area where demand keeps growing is energy, and in particular, electricity. With expected extra demand from AI, Crypto, EVs, air conditioning, and population growth (to name a few), I expect the price of electricity to increase.
On the other hand, with EV, and PHEV numbers increasing, I expect US surpluses of gasoline to keep gas prices low. Unless we begin to export more gasoline.
The US still primarily is an import/consumption driven economy. I agree about electricity increasing. This is primarily due to the high power consumption of AI. I expect the grid operators to say no mas to more data centers at some point. This why Facebook, Google and others have moved off grid to power their data centers primarily through hydroelectric power in places you wouldn’t expect a data center. There is a company here in California that can deploy a hydroelectric data center in weeks b/c it actually is more like a ship that is docked.
What is AI? Is it the useless chatbots on company websites? Is it the content writing of gibberish on many of the news websites?
What exactly is AI? Cuz I ain’t seeing no intelligence
Lol! I’ll bet you asked an AI chatbot about how many millions have died from the covid vaccine. Or for proof that global warming is a hoax. Or about some other stupid cult conspiracy crap that you believe.
And when it replied that you were a f*cking moron, you concluded that AI is useless.
Exactly!!!!
I was also gonna emulate Jeff Green … buy a used Tesla … then put it on auto pilot and fall asleep in the back seat … just to see what ‘AI” can do….
But then I am not that stupid…
Can someone please provide some examples of AI in action?
I do not consider chatbots and really bad writing to be intelligence – artificial or otherwise.
come on man … let’s have some examples of this ‘world changing’ tech that is gonna make everyone obsolete
hahahahaha
Hydro-electric? That usually requires dams. There are tiny setups that can be placed in some rivers, but they can’t produce much power. Not sure what you are talking about.
If you eat out enough, eventually you will run out of money. It is time to starve the restaurant industry (and commercial real estate) as a by product. But the Fed won’t let commercial real estate fail even though it already has. Builders also won’t magically come down on prices of new commercial real estate (not that any is necessary but I still see it being built). Banks and real estate companies must have figured out that they can build and own as much commercial real estate as they want and the Fed will continue to directly support this failed industry. It is bad behavior all around. Banks, real estate companies and investors get tax writeoff and then what happens, despite there being shrinking demand for commercial real estate, they stick what they have on their portfolio as an asset and rinse/repeat despite having no renters.
Effectively residential and commercial real estate is a giant money laundering operation to clean dirty money from all corners of the world.
dirty money? sounds like big government propaganda BS. imagine trying to explain to a man in 1924 or 1824 or 1724 that concept. what they teach the kids in public school these days is so ridiculous.
The report must be discounted for the short time until the election, Joe Biden’s criminal tendencies, and the integrity of the BLS.
CPI declined a mesely 0.1% for just ONE month and immediately, the calls for the FED to cut interest rate at he Sept meeting are rampant. Sheese!
The next time we get an increase of 0.1% in CPI, I am going to immediately demand an increase in interest rates by the FED.
So true
Wall St. hates having to pay 5.25% for their gambling money.
Canada dropped rates by .25%…. look what happened:
Inflation in Canada Throws Another Curveball: Core CPI Spikes Month-to-Month by Most since 2022
Core CPI – goods and services less food and energy – spiked by 4.9% month-to-month annualized in May from April, the hottest since September 2022 (blue), according to Statistic Canada today. Read More
Are you implying that the inflation in Canada from April to May was caused by an interest rate cut in June? Brilliant! Lol!
Yes the Canada month to month change was an annualized 4.9%. The 12 month change, May 2023 to May 2024 was 2.9%. Was that also caused by the June rate cut?
Canada is too much of an open border + welfare state economy. That is the main reason for the problems there.
PCE has been below 3% since October 2023. That is a long enough trend to consider inflation is tamed.
Technically the Federal Funds Rate should be 1.5% to 1.75% greater than the inflation rate.
Right now the Fed Funds Rate is 5.5%, so they could lower it to 4.75% without causing any alarm.
I suspect they will decide to lower the rate to 5.25% at the upcoming September meeting, and then see what happens for the next 3 to 4 months.
CPI declined, which is deflation.
Also, real income is up 0.4% due to the deflation factor. Everything’s coming up roses.
Next year’s social security COLA will be somewhere around 2.6% at the rate the BLS is doctoring the data.
Probably. Last year the tax brackets went up 5.4% which was probably a good estimate of the real inflation rate, but SS went up 3.2%.
Of course the limits for calculating the taxable portion of SS are not indexed to inflation. This was intentional.
We would expect food and item prices of all kinds to drop as the number of competitors post-Covid increases (during Covid businesses closed up and we were down to two companies providing widgits. Now maybe we have 4.) Gasoline, diesel and natgas are the same prices they were 11 years ago (chicagogasprices.com). Home insurance is up cause of the large numbers of lawsuits in FL over hurricane damage — lawyers got most of the money. That leaves rents and property taxes which are up cause we didnt save enough for the retiring govt. employees and teachers that are now leaving en masse.
Home insurance is up because of the substantial increase in home valuations and the expenses related to paying out claims. Events in FL may be cover for some of it, but certainly not the largest component.
Even after I cut my coverage by $100,000, the premium was still up 52% over two years
I’m speaking on the U.S. as a whole, which is how I took your initial comment. The industry is about making money for the business, not about protecting policy holders. There are many reasons the old price structure wasn’t sustainable, a couple hurricanes isn’t the largest one.
You can only get drops in food and item prices if the input costs of those items drops *or* you can make more from fewer inputs (efficiency gains).
Some inputs may not have changed much but many others (wages especially) have or are rapidly rising. Many raw input materials (eg Lumber) have also dramatically increased in cost with no possibility of bringing more to market (there is a finite amount of lumber for example but an ever increasing population demand). Finally there are increased tariffs for many products produced elsewhere that have driven up their costs.
About the only place you will find decreasing prices is in efficiency gains (ie things like TV’s where we get ever larger and better ones for cheaper prices).
1970s inflation was almost entirely driven by oil prices, which affected the prices of everything else as oil is used one way or another in almost everything. This time energy is flat, but a lot of weird things were increasing instead: food, oddball items like computer & car parts, low-wage labor, insurance, prop taxes .. its a very different kind of inflation. Im not sure if anyone has determined if interest rates are even gonna matter in fighting it.
This time inflation has been caused by a massive money dump during Covid. Several trillion dollars was handed out to the masses with zero work being done for it. That money is just sloshing around in the system going from place to place (initially it was in goods, now it’s moved to services as people have demanded higher wages to be able to afford the goods).
So yeah it’s a very different kind. It’s going to take a LONG time for the affects of that free money to wear off.
The margin of error in monthly CPI reporting is large enough that the reported tiny drop is statistically indistinguishable from zero change.
It’s therefore incorrect to state categorically “CPI dropped”. We’re certainly not in deflation, at least not without a lot more data!
The creep of tipping is indeed outrageous. Love the places like Jimmy Johns where your sandwich is already $15+ you stand in line, you order, you wait next to the counter for them to make your $15+ sandwich and then hand it to you next to the tip jar. Fuggedaboutit.
These inflation indexes are a scam and not reflective of reality.
Food away from home is like a waiting room for the medical-industrial complex.
Yes, it is a problem for the addicts, and a double-dipping for the GDP.
Active listing : the spread between 2019 and 2020 in Dec was the highest. It means that in Dec 2020 demand was highest. The negative spread between 2023 and 2024 in June 2024 is the highest. Demand is falling, but it’s local. In Las Vegas nothing is available. In Tampa and Orlando plenty. The average weekly earnings in mfg and construction are rising M/M. The average weekly earnings in construction in FL is sharply down.
The biggies in increases are: tobacco and car insurance
re: “making a mockery of both indexes”
Love it when you talk dirty.
Gold is getting a lift from the lower treasuries, near an all time high.
You make an off-hand remark about tips and I’m curious – is tipping (and the recent dramatic increase in expected tipping) captured anywhere in CPI or PCE? Or is that a purely hidden inflation? In other words, what’s measured, prices before or after tip?
A similar question about taxes. Though I don’t think there’s been many significant increases in tax rates so not currently a big factor, if and when there are changes in tax rates, will these be captured in the statistics?
Time for a new Compound Inflation Report/Compound Currency Devaluation Report
If June 2024 CPI were calculated Biennially it would be 6.09%, stating that prices are 6.09% higher than in June, 2022. This is down from last months 7.54%, Biennial currency devaluation.
If June 2024 CPI were calculated triennially, it would be 15.74%, stating that prices are 15.74% higher than in June, 2021. This Triennial CPI has dropped a little over a percentage point from last months 3 year 17.10% currency devaluation .
4 year compound inflation still stands very high at 21.99%, down from the 22.84 % I reported last month.
5 year compound inflation stands at 22.72%.
6 year compound inflation is 24.69%.
7 year compound inflation is 28.3%
8 year compound inflation is 30.74%
9 year compound inflation is 32.05%
Once again inflation is not simple inflation but is compound inflation. Triennial Compound CPI is approximately 10.5% greater than FED targeted 2% CPI goals for this same 3 year time period.
4 year compound inflation is even worse at 13.74% higher than FED targeted 2% CPI goals for this same 4 year time period.
Moving Forward it would take 6.87 years of ZERO PERCENT CPI to arrive at what the FED’s targeted 2% CPI would have produced with June 2020 as the base month 4 short years ago. I call this important number the “ZERO PERCENT CPI NEUTRAL AFFECT ADJUSTMENT INDICATOR” or ZPCpiNAAI for short.
Inflation is a thief. CPI is a conservative calculation that attempts to reduce COLA adjustments, and does not reflect true price increases for most necessities.
Just the Facts.
If only the general masses were aware of these numbers, things would be different. Thank you.
They are aware. Maybe not the exact percentage as noted by the original poster and maybe they don’t understand the math either.
But they are painfully aware every time they go to buy any goods or services.
The goal is to maintain inflation at all costs. It is how they make their money. Slightly slowing down the rate of increase is a tactic to make the inflation last longer. A slow motion crash can still be profitable.
Driving around Sacramento the number of “for lease”. “ space available”, now renting “ signs is daunting. This is not just a commercial real estate anomaly, it is a screaming indicator of collapsing business climate. Don’t point to stock prices as the “ all clear” sign.
Businesses leaving or going bankrupt?
There are a lot of states actively recruiting California companies to move to their state.
Business is being driven out by crime and homelessness. No one wants to go shopping in a sketchy environment.
Just where is rent moderating? What towns? I doubt any cities.
Average 1 Bdroom around me is a range from $1,300 to $1,600
My wife is the executor of her mother’s estate in the Portland, Oregon, area. We live in another state. Her estate includes her mother’s home, but also an older double-wide manufactured house that she had bought for her divorced daughter. It’s in a trailer park. We are selling it now. It is about 20-years-old but it will sell for about what we paid for our single-family dwelling in our small town.
And the trailer also requires a monthly $800 space rent.
How can people afford to live in those places?
they make more, but they certainly dont net more after all bills are paid
the rate of increase is moderating – as I finally expected
In context it is clear what I meant. Nonetheless I added a sentence.
I appreciate the response. Dare I say I feel honored LOL. Seriously, appreciate that…….
I think the moderation is because there are just less people that can afford these increases……….if so does that change anything? I guess moderating down is a good thing for now
zerohedge: “surprise to the downside as it catches down to stale lagged real-time data, even as rents are actually rising right now… but the BLS won’t observe this until early 2025.”