Last month, we commented that the decrease in the monthly rate of inflation during the summer was likely going to be temporary as commodity prices (mainly fuel) and shelter (mainly rent) were going to continue to increase while the areas that declined were being negatively impacted by a decline in mobility/engagement (mainly travel). The September Consumer Price Index (CPI) confirmed that view.
The Headline CPI rose 0.40% on a monthly basis and 5.4% on a year-over-year (YoY) basis. Both were increases compared to August. Core CPI (excluding food and energy) rose 0.2% on a monthly basis and 4.0% on a YoY basis. The monthly rate was an increase from August, and the YoY rate was unchanged.
Travel related areas are still experiencing declines but at a slower pace than in August.
Energy price growth continued to increase at above 1%, but the pace slowed from August to September.
This could reverse in the October report as oil prices (WTI) ended last week up more than the month of September, although natural gas prices are down -7.75% in October after being up 27% in September.
Another large consumer commodity expense is food, and grocery prices increased 1.25% in the month of September.
This could ease in the next update as some of the larger food commodities have slowed in October.
The largest component of the CPI is shelter, which is made up of rental rates and the expected rental rate of owned properties. Shelter increased by 0.40% on a monthly basis, an increase from 0.15% in August. Rents increased by 0.45% on a monthly basis and owners’ equivalent rent (rent estimate for owned property) increased by 0.40%, the most since 2006.
All of these levels are still below their pre-2020 yearly growth rates and have room to continue to put upward pressure on the overall CPI.
Broader measures of CPI are also continuing to increase as the trimmed mean CPI (adjusts for large negative and positive outliers) increased at 3.5% y/y rate, the most since September 2008. The median CPI increased at a 2.8% y/y rate, the most since March 2020. This suggests that price increases have moved beyond areas impacted by supply changes and COVID restrictions.
As shelter and commodity prices continue to increase, the Headline CPI should likely continue to increase and be reflected in financial markets through higher interest rates, steeper curves, positive commodity performance, and cyclical equity factor outperformance.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Vice President, Investment Strategy
Boyd Watterson Asset Management, LLC