Positive inflation news has sparked the markets with talk of a Fed pivot, but is inflation finally beginning to moderate?
Is inflation finally beginning to moderate?
During the past year and a half, inflation has soared around the Western world. But finally, on Nov. 10, we got a piece of good news: U.S. inflation unexpectedly moderated in October, coming in 0.2% lower than expected. Markets rejoiced. Bond yields plunged, and equities rallied.
The overall CPI inflation has now moderated from 9.1% in June to 7.7% in October. But much of the reason for the moderation in the overall CPI comes from energy prices, which have been falling in recent months.
Graphic: Headline U.S. CPI: Month on Month and Year on Year
Meanwhile, the story of core inflation is not so positive. Excluding food and energy, CPI slipped from 6.6% to 6.3% year-on-year.
Graphic: U.S. CPI Ex-Food and Energy: Month on Month Year on Year
The single largest component of inflation is housing, specifically rent and owners’ equivalent rent. And housing costs continue to soar, rising nearly 7% year-on-year.
Graphic: Owners Equivalent Rent (OER) Vs. S&P Corelogic CS 20 Cities Home Price Index
The labor market is slowing but remains very tight, with average hourly earnings still growing by nearly 5% per year. But even with the economy back to full employment, employers are still looking to hire an additional 10.7 million workers–far more than they were looking to hire pre-pandemic.
Graphic: U.S. Jolts Job Openings and Labor Turnover
As such, it may be slightly premature to celebrate a moderation in inflation.
