Core Services CPI produced 2nd outlier. In the past, after two outliers in this very volatile data, the next move was a U-turn.
By Wolf Richter for WOLF STREET.
The Consumer Price Index for June, on a month-to-month basis, was pushed down by plunging gasoline prices, the continued historic plunge in prices of durable goods, led by used vehicles, nearly-flat food-at-home prices, and “core services” prices that rose at the smallest pace since the summer of 2021 in what looks like an outlier move of which we have seen already many in both directions.
On a year-over-year basis, in summary:
Core services CPI (red line in the chart above) increased by 5.0% year-over-year in June, according to the Bureau of Labor Statistics today. It has been just above 5% since December 2023 (5.3%) and accounts for nearly 65% of total CPI. It includes all services except energy services.
Durable goods CPI (green) has been falling since mid-2022, led by the plunge in used-vehicle prices, and now the decline in new vehicle prices, along with price drops across other durable goods, such as consumer electronics and furniture. In June, durable goods CPI fell by 4.1% year-over-year, the biggest drop since 2003 – unwinding part of the massive spike during the pandemic.
Core CPI (blue), which excludes food and energy, rose by 3.3% year-over-year, continuing its deceleration, slowed by the historic plunge in durable goods prices.
Overall CPI (yellow) rose by 3.0% year-over-year. It has been in the same narrow range since June 2023 when it also rose by 3.0%. (On a month-to-month basis, CPI dipped 0.06%.)
“Core” CPI, month-to-month.
Core CPI rose by 0.06% (= 0.8% annualized) in June from May, the smallest increase since January 2021 (blue line in the chart below). The month-to-month squiggles can be wild, as we can see in the blue line. The June and May values were driven down by the plunge in durable goods and the outlier in services that we’ll get to in a moment.
The six-month core CPI, which irons out most of the month-to-month zigzags, rose by 3.3% annualized, the second deceleration in a row, after five months of accelerations in a row.
“Core services” CPI: 2nd outlier in a row. Will there be a #3 & #4 to make a trend?
Core services CPI increased by 1.6% annualized in June from May (0.13% not annualized), the smallest increase since August 2021, and the second outlier in a row (blue line).
These two big outliers in May and June decelerated the six-month core services CPI to 4.9% annualized, the smallest increase since October 2023 (red).
When do outliers become new trends? If there are three “outliers” in a row, they’re not outliers anymore, and if they’re followed by a fourth, then they make a new trend. But in the time span of this chart, there haven’t been more than two outliers in a row, before reverting to trend – in both directions.
By themselves, one or two outliers don’t make a trend. August 2021 was also an outlier, followed by another outlier in September 2021, and then Core services CPI reverted back to trend. But those big outliers in August and September 2021 also decelerated the 6-month reading for a few months. And there were outliers in the opposite direction, such as in July 2020 and in January 2024.
The housing components of core services CPI.
Rent of Primary Residence CPI rose by 3.2% annualized in June from May, the slowest increase since July 2021, following the acceleration in the prior month (blue).
The three-month reading rose by 4.1%, the smallest increase since September 2021.
The Rent CPI accounts for 7.6% of overall CPI. It is based on rents that tenants actually paid, not on asking rents of advertised units for rent. The survey follows the same large group of rental houses and apartments over time and tracks the rents that the current tenants, who come and go, actually paid in these units.
The Owners’ Equivalent of Rent CPI rose by 3.4% annualized in June from May, a big deceleration after the acceleration in the prior month (blue in the chart below).
The three-month OER CPI rose by 4.6% annualized, the smallest increase since September 2021 (red).
The OER index accounts for 26.7% of overall CPI. It estimates inflation of “shelter” as a service for homeowners – as a stand-in for the services that homeowners pay for, such as interest, homeowner’s insurance, HOA fees, maintenance, and property taxes. As an approximation, it is based on what a large group of homeowners estimates their home would rent for, the assumption being that a homeowner would want to recoup their cost increases by raising the rent.
“Asking rents…” The Zillow Observed Rent Index (ZORI) and other private-sector rent indices track “asking rents,” which are advertised rents of vacant units on the market. Because rentals don’t turn over that much, the ZORI’s spike in 2021 through mid-2022 never fully translated into the CPI indices because not many people actually ended up paying those asking rents.
Zillow has not yet released the ZORI for June. For May, the ZORI rose by 0.2% month-to-month, seasonally adjusted, and by 3.4% year-over-year.
The chart shows the CPI Rent of Primary Residence (blue, left scale) as index value, not percentage change; and the ZORI in dollars (red, right scale). The left and right axes are set so that they both increase each by 55% from January 2017. The ZORI was up by 49% from January 2017, and the CPI Rent was up by 38% over the same period.
Rent inflation vs. home-price inflation: The red line in the chart below represents the CPI for Rent of Primary Residence as index value. The purple line represents the Case-Shiller 20-Cities Home Price Index (see our “Most Splendid Housing Bubbles in America”). Both indexes are set to 100 for January 2000:
Motor-vehicle maintenance & repair inflation surged because wages of auto-repair technicians surged, and because prices of replacement parts surged. But that spike during the pandemic (+35% since January 2020) is decelerating.
In June from May annualized: +2.5%Year-over-year: +6.0%Since January 2020: +35%
Food away from Home CPI – often called food services – includes full-service and limited-service meals and snacks served away from home, food at cafeterias in schools and work sites, food served at stalls, etc.
In June from May annualized: +5.1%, fastest increase since JanuaryYear-over-year: +4.1%, an accelerationSince January 2020: +27%.
Core services price level. Since January 2020, the core services CPI has increased by 21%.
And it’s spread across services, not just housing. “Super core” services CPI, which excludes rent and OER, increased by 20% over the same period.
The steepness of the curve indicates the rate of inflation.
Major Services ex. Energy ServicesWeight in CPIMoMYoYCore Services64%0.1%5.0%Owner’s equivalent of rent26.7%0.3%5.4%Rent of primary residence7.6%0.3%5.1%Medical care services & insurance6.5%0.2%3.3%Food services (food away from home)5.3%0.4%4.1%Education and communication services5.0%0.0%2.3%Motor vehicle insurance2.9%0.9%19.5%Admission, movies, concerts, sports events, club memberships1.8%0.5%6.9%Other personal services (dry-cleaning, haircuts, legal services…)1.5%0.9%4.8%Lodging away from home, incl Hotels, motels1.5%-0.2%-2.3%Motor vehicle maintenance & repair1.2%0.2%6.0%Public transportation (airline fares, etc.)1.2%-3.2%-3.8%Water, sewer, trash collection services1.1%0.2%4.6%Video and audio services, cable, streaming0.9%-0.5%2.3%Pet services, including veterinary0.4%-0.5%5.1%Tenants’ & Household insurance0.4%-0.7%3.2%Car and truck rental0.1%1.3%-6.3%Postage & delivery services0.1%0.1%3.7%
Durable goods CPI.
The durable goods CPI fell by 5.9% annualized (-0.50% not annualized) in June from May, and by 4.1% year-over-year, the biggest drop since 2003.
New and used vehicles dominate this index. Other goods included are information technology products (computers, smartphones, home network equipment, etc.), appliances, furniture, fixtures, etc. All categories have been experiencing price declines starting in late 2022, after the ridiculous price spike during the pandemic.
From January 2020 to the peak in August 2022, durable goods prices spiked by 23.8%. Since then, they have dropped by 7.0%, having unwound less than one-third (29%) of the pandemic spike. Compared to January 2020, the index is still up 17%.
Major durable goods categoriesMoMYoYDurable goods overall-0.5%-4.1%New vehicles-0.2%-0.9%Used vehicles-1.5%-10.1%Information technology (computers, smartphones, etc.)-0.4%-8.5%Sporting goods (bicycles, equipment, etc.)-0.9%-0.8%Household furnishings (furniture, appliances, floor coverings, tools)-0.2%-2.5%
New vehicles CPI fell 1.9% annualized in June from May (-0.16% not annualized), the sixth month-to-month decline in a row. Year-over-year, the index fell by 0.9%.
After the huge surge and then a long plateau, prices are now finally declining, as inventories of new vehicles have built up, approaching glut conditions at many dealers, and automakers are having to offer big incentives and dealers big discounts to move the vehicles.
In the years before the pandemic, the new vehicle CPI zigzagged along a flat line, though vehicles were getting more expensive. This is the effect of “hedonic quality adjustments” applied to the CPIs for new and used vehicles and other products (our explanation of hedonic quality adjustments in the CPI).
Used vehicle CPI, seasonally adjusted, plunged in June from May by 16.9% annualized (-1.5% not annualized), and by 10.1% year-over-year (red in the chart below).
The 2021 to mid-2022 spike and plunge since then of the used vehicle CPI is confirmed by private-sector data from Manheim, the largest auto auction in the US: wholesale prices of used vehicles are in a similar historic down-spiral.
Not seasonally adjusted, used vehicle prices rose 4.3% annualized in June from May (blue).
Used vehicle CPI has now given up half of the massive spike from January 2020 through January 2022, but is still 28% higher than in January 2020.
Food Inflation.
Inflation of “Food at home” – food purchased at stores and markets and eaten off premises – has cooled, barely ticked up in June from May, and was up 1.1% year-over-year, after the spike during the pandemic.
MoMYoYFood at home0.1%1.1%Cereals, breads, bakery products-0.1%0.5%Beef and veal0.1%5.1%Pork-0.5%3.8%Poultry-0.6%0.3%Fish and seafood0.6%-1.0%Eggs3.5%10.2%Dairy and related products0.6%-0.1%Fresh fruits-0.6%-1.7%Fresh vegetables-0.6%-0.3%Juices and nonalcoholic drinks0.1%1.5%Coffee, tea, etc.0.3%0.0%Fats and oils1.4%4.0%Baby food & formula1.7%5.6%Alcoholic beverages at home0.2%1.7%
The CPI for food at home is up 25% from January 2020. Food inflation has cooled, but not turned negative as in durable goods, and prices continue to rise from very high levels.
Energy.
The CPI for energy covers energy products and services that consumers buy and pay for directly:
CPI for Energy, by CategoryMoMYoYOverall Energy CPI-2.0%1.0%Gasoline-3.8%-2.5%Electricity service-0.7%4.4%Utility natural gas to home2.4%3.7%Heating oil, propane, kerosene, firewood-2.5%1.3%
Gasoline prices (account for about half of the energy price index) are very seasonal, with the lowest prices in December or January and the highest prices during driving-season, which started in June. But in June, gasoline prices, not seasonally adjusted, fell (blue). And so seasonally adjusted, prices plunged (red) in June from May. Gasoline prices remain high, but they have come down from the spike that had peaked in June 2022
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