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The year-over-year comparison set for the components of the Consumer Price Index is going to get more difficult in the coming months, which should bring down the rate of change for overall inflation.

When the last Consumer Price Index (CPI) report was released, we wrote an article highlighting that although the year-over-year rate of change increased, other indicators were suggesting that investors did not expect that trend to continue.  Ahead of the next CPI update, we wanted to review the comparison set for some of the areas that have been having a major impact on the growth rate of the index.

Oil prices have been making new highs recently and were increasing even before the recent events between Russia and the Ukraine.  While the price movement likely means energy will make a positive contribution to inflation growth, the rate of change in oil prices will likely slow in the coming months.  This is based on the sizeable year-over-year increases that took place in March-May of 2021.

Source: FRED.

Other commodities like food and metals also had similarly large increases in March-May of 2021.

Source: FRED.

Used car prices had a large impact on the CPI in 2021, and the year-over-year comparison set will start to become more challenging in the coming months.

Source: Hedgeye.

Shelter is the largest component of the CPI and was a positive contributor in 2021.  The monthly increase in the Cas-Shiller Home Price Index peaked in July and the comparison is going to get more difficult starting in March.  The rate of change in apartment rents nationally is starting to turn negative and the comparison set starts to get more difficult in March.

Source: FRED.

Source: Hedgeye.

The challenging comparison set mixed with slowing economic growth and tighter monetary policy will likely lead to lower rates of growth in the CPI over the coming months.  

 

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.

 

Vice President, Research and Strategy
Boyd Watterson Asset Management, LLC