Is Underlying Inflation Finally Decelerating, Or Revealing Itself?
Recent price changes at sit-down restaurant meals suggest that normalization has finally arrived. But some other indicators point the other way.
The U.S. Consumer Price Index (CPI) was 0.6% higher in August than July. That was the fastest monthly growth rate since June 2022.
While 0.38 percentage points of that increase can be attributed directly to higher energy prices, that is not the full explanation. A stripped-down measure of the CPI that excludes energy, food, shelter, and used vehicles rose at the fastest monthly rate since February 2023, and before that since September 2022. Prices jumped in categories ranging from dentists to household equipment and furnishings.
Similarly, the Producer Price Index (PPI) for final demand excluding food, energy, and trade services rose at the fastest monthly rate since January 2023. This core PPI measure has grown 4% annualized in July and August, compared to 1.8% annualized in February-June.
The question is whether this is a fluke, or exactly the sort of thing one would expect if consumers’ nominal spending power were rising a bit faster than businesses’ ability to produce goods and services.