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CPI: Surprise Increase, Despite Lower Gasoline Prices

September 13, 2022
Bottom Line: CPI rose slightly in August, countering expectations for a decline due to lower gasoline prices, as core CPI jumped sharply, up 0.6% on the month.
Owner's Equivalent Rent (OER), a key measure of shelter prices and nearly a third of core CPI, rose at its fastest pace in this cycle, up over 0.7% on the month and 8.5% annualized over the last three months, accelerating relative to the 12-month pace of 6.4% as the lagged impact of higher home prices worked through the CPI methodology. Medical care services prices, the most significant contributor to volatility before the pandemic but quiet until recently, jumped nearly 0.8%, its largest increase in years. Airfares and used car prices were lower, but not nearly enough to offset the surprises in those two large categories.
Overall, while consumers saw some welcome relief in energy prices in August, price pressures remained stubborn, with higher medical care service prices hurting consumers. Medical care services are a big concern for the trend, potentially offsetting some of the deceleration in OER that should come later this year based on historic lags with home prices.

ROSE by 0.12% in August, compared with market expectations for a decline of 0.10%.
  • Food prices increased by 0.79% while energy prices fell by 5.0%.  Prices for gasoline fell by 10.6% while prices for fuel oil declined by 2.4%, prices for electricity climbed by 1.5%, and prices for natural gas rose by 3.5%.  
  • Energy prices are now 23.9% ABOVE their year-ago level.  
Overall consumer prices are now 8.2% ABOVE their year-ago level; in August 2021, consumer prices were 5.2% ABOVE their year-ago level.
The Core CPI ROSE by 0.57%, compared with market expectations for an increase of 0.30%.  Prices for commodities excluding food and energy commodities rose by 0.5%.
  • Gains in new vehicles (+0.8%) were partially offset by declines in used cars & trucks (-0.1%). 
  • Prices for services excluding energy services rose 0.6% with a sharp increase in medical care services (+0.8%), and owner's equivalent rent (+0.7%).
Core consumer prices are now 6.3% ABOVE their year-ago level; in August 2021, consumer prices were 4.0% ABOVE their year-ago level.
Article by Contingent Macro