Economists surveyed by Bloomberg are looking for core inflation, that is inflation without volatile food and energy prices, to return to a four-decade high in tomorrow’s report of CPI inflation in September. Projections are looking for a 0.4%increase n core inflation in September and an annual rate of increase of 6.5%. That would match the March rate that was the highest since 1982. About a third of economists in the Bloomberg survey, however, expect an annual rate of 6.6% or more.
The economists in the survey do expect a decline in headline (that is, all items) inflation to an 8.1% annual rate. A drop in gasoline prices is expected to keep headline inflation down.
A key US inflation measure due Thursday is set to return to a four-decade high, underscoring broad and elevated price pressures that are pushing the Federal Reserve toward yet another large interest-rate hike next month.
The big item that is keeping inflation at such high levels is housing. Shelter makes up about one-third of the basket of consumer prices for headline inflation and represents an even bigger weight in the core inflation number. Rental inflation, in the indexes for rent of a primary residence and owners’ equivalent rent (which is intended to capture increases in housing prices) both rose 0.7% in August and were up the most since 1986 that month on an annual basis. Economists expect those two measures to rise by another 0.7% in the October 13 CPI report.
It now looks like month-to-month inflation in those two categories is near (or at) a peak, but economists at Bloomberg don’t expect the annual rate for these two components to peak until sometime in the second half of 2023. Rental prices usually don’t fall until labor market growth, and wage gains, slow or go negative. And that transmission mechanism works very slowly.
Still, economists see some sectors where inflation does look to be ebbing. Prices of used-vehicle are coming back down to earth. Retailers are announcing widespread price cuts to clear inventory. The cost of medical care is set to turn negative starting with the October report.
