U.S. Inflation Isn't Getting Worse (or Better). Keep Watching Motor Vehicles.

The latest monthly figures are telling the same story as the past few months. So I did a deep dive into what's been affecting cars and trucks.

The U.S. Consumer Price Index (CPI) in November was 6.8% higher than in November 2020. That’s the fastest yearly rate of inflation since the early 1980s—and much faster than the prevailing rate of inflation as recently as this spring.

It sounds bad, but it shouldn’t—yet—be a cause for policy action to restrain consumer spending. Prices should stop spiking once (if?) the pandemic is brought under control globally.¹ A post-pandemic return to normalcy should give producers both the time and the ability to ramp up their output while encouraging consumers to shift their spending towards sectors that still have plenty of spare capacity.

A close reading of the data suggests that the current price pressure is still confined to the same batch of idiosyncratic sectors that have been driving inflation all year. Moreover, measures of actual consumer behavior suggest that Americans are responding to higher prices not by hoarding in anticipation of even more inflation, but by postponing their spending in the expectation that affordability will improve.

If the paragraphs above sound familiar, it’s because I copied them almost verbatim from the piece I published shortly after last month’s CPI release. For better or worse, the latest data on prices and consumer sentiment are entirely consistent with what we already knew. That may not be much comfort to people facing higher prices for things they want to buy, but it’s reality.

I encourage you to read (or reread) that note if you want more details, although I will be providing updated versions of the main charts at the end of this note. So in the interests of offering you something different from last month, this note will focus on the forces affecting the motor vehicle sector, which has disproportionately contributed to the price increases since March.