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CPI: Still Running Hot, Headline Pushes Towards 7%

December 10, 2021
Bottom Line: CPI accelerated slightly more than expected in November with the headline year-on-year figure coming in at 6.8%, up 0.8%. Core CPI rose 0.5% on the month, up 4.9% year-over-year, as expected.
Owner's Equivalent Rent (OER), a key measure of shelter prices and nearly a third of core CPI, accelerated as expected, up 0.44% on the month. OER historically lags home price moves by over a year, and the acceleration should last until the 2nd Quarter of 2022. It rose 5.4% annualized in the three months ended in November vs. 3.5% over the last 12 months and just 2.2% in 2020. And there is scope for somewhat further acceleration given the historical relationship.
Key categories that have risen sharply since the pandemic were higher again. Used car and truck prices were up 2.5% on the month. Apparel prices were also higher with fewer deals given supply constraints.
Prices related to medical care, historically the second-most important category after OER, continued to rise only modestly, as we've seen throughout much of the pandemic.
Overall, core inflation pressures remain significant. While there is scope for the pandemic-related categories to offset some of the acceleration in OER that is still to come, there are few signs of that so far, and core inflation pressures will remain significant well into 2022.

ROSE by 0.78% in November, compared with market expectations for an increase of 0.70%.
  • Food prices increased by 0.71% while energy prices rose by 3.5%.  
  • Prices for gasoline rose by 6.1% while prices for fuel oil increased by 1.5%, prices for electricity climbed by 0.3%, and prices for natural gas rose by 0.6%.  
  • Energy prices are now 33.5% ABOVE their year-ago level.
Overall consumer prices are now 6.9% ABOVE their year-ago level; in November 2020, consumer prices were 1.1% ABOVE their year-ago level.
The Core CPI ROSE by 0.53%, compared with market expectations for an increase of 0.50%.
  • Prices for commodities excluding food and energy commodities rose by 0.9%.
  • Gains in used cars & trucks (+2.5%), apparel (+1.3%),  drove the increase.
  • Prices for services excluding energy services rose 0.4% with a moderate increase in transportation (+0.7%), shelter (+0.5%), and owner's equivalent rent (+0.4%).
Core consumer prices are now 4.96% ABOVE their year-ago level; in November 2020, consumer prices were 1.7% ABOVE their year-ago level.