Inflation Prediction as of May 2023 ---- Headline Inflation Headed to 3.2% Come Midsummer
INFLATION Forecast Summary:
This is a forecast confirmation from our forecast released on April 8, 2023.
The CPI trend is expected to continue declining this year. This is consistent with the latest CPI data released on May 10, 2023. Annual CPI is currently 4.9%.
For April CPI, the monthly 0.3% for April 2022 falls off and was replaced by the monthly 0.4% on 5.10.23, thus little change. However as May 2022 and June 2022 fall off, those changes will be material.
More significantly, the trend for reduced CPI will likely continue. Inflation is likely headed to just above 3% in midsummer, 2023.
CPI Component summary:
Total CPI: On 5.10.23 April 2022's 0.3% will fall off. Do NOT expect much change in next month's CPI--it may go up given how Energy prices are increasing and the total CPI for April 2022 is a moderate number of 0.3%
Energy: On 5.10.23 April 2022's <2.7%> will fall off. Given energy prices are increasing in April and May 2023 it is anticipated that energy CPI will have a semi-upward spike
Food: Will also contribute to the CPI improvement. On 5.10.23 April 2022's 0.9% will fall off. Annual Food CPI will decline.
Core: On 5.10.23 April 2022's 0.6% will fall off. Annual Core will likely improve but by a moderate amount
Shelter: Which is half of the CORE continues to increase On 5.10.23 April 2022's 0.5% will fall off. Do not expect much of a change in the Shelter's Annual CPI
Medical: Costs should continue to improve. On 5.10.23 April 2022's 0.5% will fall off. Medical CPI annual CPI will improve even further.
New Cars: On 5.10.23 April 2022's 1.1% will fall off. Annual CPI for New Cars will decrease
Used Cars: On 5.10.23 April 2022's <0.4%> will fall off. Annual CPI for Used Cars will be negatively impacted
For April CPI, the 0.3% for April 2022 falls off and was replaced by 0.4% on 5.10.23, thus little change. However as the May 2022 and June 2022 fall off, those changes will be material with the annual CPI declining to ~3.2% as of 7.12.23.
April 2023 as reported 5.10.23
Predicted vs Actual and a forward look to May’s CPI to be released 6.13.23
INFLATION History: Over the past 50 years, the US has had 3 inflationary time periods and all related to Oil/Gas prices. Note that as fast as inflation spiked, it fell off just as dramatically.
It is worth noting that mortgage rates do follow the CPI lead but there is a lag time involved. Rates tend to rocket up and feather down---no one wants to be first to lower rates in case the market decreases stall.
Total and Core: The annual CPI is a rolling product of 12 monthly data points. Think of it as being 12 dominoes, as a new one comes on, the oldest one falls off---next one is May 2022’s 1.0%.
Total CPI is going to decrease through June 2023 as the older large blue bars (May-June 2022) are replaced with smaller blue bars. This drop in CPI will be rapid.
Energy and Food: For energy, note the scale is HUGE. The large blue bar for May 2022 is the energy that will fall out of the rolling CPI calc on June 13 when the May 2023 CPI data is released and the May 2022 data falls off. Food is trending down too.
GAS PRICES are an international item that affects all. Putin invades Ukraine 2.24.22. Gas prices were up 19% for the ONE month alone: March 2022
The 17% June gas prices surge will fall off 7.12.23
Core CPI: Core represents 77% of all CPI. Of this shelter is the largest component representing 32% of all consumer expenditures.
Shelter and Medical: Shelter will start trending down as repriced lease data rolls become available Changes in this component will lag the CPI improvement but it will help moderate CPI in the months after June 2023.
NEW Vehicles and USED Vehicles: New car inflation will continue to decrease when April and May 2022 data rolls off, this will have a material CPI improvement. Used car price decreases stopped while new car production and inventory replenishment continues.
Components: Energy, Food and Core: Commodities and Services + Major Subcomponents. There are 300+ product categories that go into the CPI calc. The 23 subcategories listed below account for 92% of all the consumer expenditures that go into the CPI calc. Green arrows are 70% and are tracked monthly.
Below are the publication dates of the CPI, PPI and Net New Jobs---data pertains to prior month of economic activity. There items will be key factors during the Federal Reserve’s meetings which are also listed below.
This was the original, hand-designed Inflation Projection through July 12, 2023. Reasonably accurate.