A quick update to my favorite CPI chart, following today's release of the April numbers:
The chart compares the year over year change in the CPI index with the same change in the CPI index ex-shelter. The ex-shelter version of the CPI has increased by 2.3% or less for the past 24 months (since May 2023), and it has averaged a mere 1.7% per year for almost two years. In the past year, overall inflation was 2.3%, and ex-shelter inflation was only 1.4%. Conclusion: only shelter costs (which I and many others believe have been overstated by faulty calculations) have kept the broader CPI from long ago meeting the Fed's objective, and their impact is continuing to fade away.
It's worth noting also that the April figures included the impact of some of Trump's tariffs, which resulted in higher prices for some imported goods. But this upward nudge to inflation was fully offset by a slower rise in prices for services. Which further illustrates how, when monetary policy is doing a good job, rising prices for some things are perforce offset by lower prices for others.
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3 comments:
Nuance Reminder: the Fed's stated target refers to headline PCE, not to CPI. Usually, CPI runs about 0.3% higher than headline PCE; however, the March 2025 PCE index was up 2.3% YoY (versus CPI at 2.4%, so only 0.1% over PCE). We'll see what the April PCE release brings....
Thanks for your post Scott. Please elaborate as to why you believe shelter costs are overstated by faulty calculations.
Welcome back Scott hope you had a great time in Italy
been there many times nothing like it
And thank you for all the great posts throughout the years
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