Energy plunges, durable goods drop, food ticks up from sky-high levels, but meat re-surges, services are hot, rents accelerate, auto insurance spikes.
By Wolf Richter for WOLF STREET.
Energy prices plunged, durable goods prices (cars, electronics, furniture, etc.) dropped, food prices rose moderately, as some food prices dropped and meat prices jumped, according to the Consumer Price Index data released today by the Bureau of Labor Statistics.
But the action was in services, and has been for a long time. The CPI for Rent inflation – actual rents that tenants are paying – re-accelerated for the third month in a row, motor vehicle insurance spiked, lots of services jumped, but airline fares, rental cars, and some other services fell.
And the odious health insurance adjustment, which is part of services, reversed, as expected. It had caused the health insurance CPI to collapse by nearly 4% month-to-month every month for 12 months through September, and finally by 37% year-over-year, after the pandemic healthcare distortions had spectacularly blown up the model the BLS had used to estimate health insurance costs.
Now the health insurance CPI went the other way, as expected, and jumped month-to-month, and will jump month-to-month for the next six months under a newly tweaked system – and the jumps will get bigger. I just shredded the whole thing here: The Collapse of the Health Insurance CPI (How it Became Chickenshit).
The Overall CPI, month-to-month, inched up by 0.04% in October, after having jumped by 0.40% in September, and by 0.63% in August. In October, it was pushed down by the 5.5% month-to-month plunge in energy and the drop in durable goods.
As you can see, this jumps up and down a lot: August had been the biggest month-to-month increase since June 2022; October was the smallest increase since July 2022 (blue line).
The three-month average, which irons out the month-to-month ups and downs, rose by 0.36%, or 4.4% annualized, with October and September values being the biggest increases since November 2022:
Core CPI, month-to-month rose by 0.23% in October from September, a slower increase than in the prior month, pushed down by the drop in durable goods, and helped by the moderate month-to-month rise in core services (blue line).
The three-month moving average rose by 0.28%, the biggest increase since June (red):
The year-over-year CPI decelerated to 3.2%, after three months in a row of re-acceleration, pushed down by the drop in energy prices and durable goods prices, and the 34% plunge in the health insurance CPI, and helped along by slower increases in food prices (green line).
The year-over-year “Core” CPI rose by 4.0% year-over-year, pushed down by the drop in durable goods, and the 34% plunge in the health insurance CPI (red line):
Core services still hot, rents smoke.
The CPI for core services (without energy services) on a month-to-month basis rose 0.34% in October from September, or 4.2% annualized, a lower rate, after three months of re-acceleration, including the 0.57% jump in the prior month (7.06% annualized), which had been the biggest increase since February (gray line).
The three-month moving average, which smoothens out these month-to-month ups and downs rose by 0.43% in October, roughly the same increase as in September, or 5.3% annualized (red line):
Year-over-year, the core services CPI rose by a still red-hot 5.5%, despite the 34% collapse of the year-over-year health insurance CPI within it:
The “Rent of primary residence” CPI further accelerated to +0.50% in October (+6.2% annualized), the biggest increase since April.
The Rent CPI is based on actual rents that tenants actually paid. The survey follows the same large group of rental houses and apartments over time and tracks what tenants, who come and go, actually pay in these units.
The huge month-to-month spikes in rent in 2022 through February 2023 are behind us. But after cooling a lot in the first half of 2023, increases of actual rents have begun to accelerate again.
Year-over-year, the Rent CPI increased by 7.2% (red in the chart below). Over the past three months, the month-to-month rent CPI has run at an annualized rate of over 6%. This 6%-plus increase also roughly matches what the largest landlords have reported in their earnings calls. So it seems rent increases have gotten stuck at the 6%-plus rate.
The “Owners’ equivalent of rent” CPI rose by 0.41% in October from September (or 5.0% annualized), after 0.56% jump in the prior month, which had been the biggest increase since February.
The OER index is not based on actual rents, but on what a large group of homeowners estimates their home would rent for.
Year-over-year, the CPI for OER increased by 6.8% (green):
“Asking rents…” The Zillow Observed Rent Index (ZORI) and other private-sector rent indices track “asking rents,” which are advertised rents of vacant units on the market. Because rentals don’t turn over that much, the ZORI’s spike in 2021 through mid-2022 never fully made it into the CPI indices because not many people actually ended up paying those spiking asking rents.
In late 2022, asking rents in dollar-terms began to dip seasonally, but then began to rise again this year to new records in dollar-terms.
This time of the year, the ZORI typically dips a little. And in October it dipped by $1.91 from the prior month (-0.09%), to $2,011.22. The decline was smaller than in October last year (-$2.58 or -0.13%).
The chart shows the CPI Rent (green, left scale) as index values, not percent change; and the ZORI in dollars (red, right scale). The left and right axes are set so that they both increase each by 55% from January 2017, with the ZORI up by 47% and the CPI Rent up by 34%:
Rent inflation vs. home-price inflation: The red line represents the CPI for Rent of Primary Residence (tracking actual rents). The purple line represents the Case-Shiller Home Price 20-Cities Composite Index. Both lines are index values set to 100 for January 2000:
The collapse of the health insurance CPI. October was the first month without the monthly push-down adjustments to the health insurance CPI, which started with the October CPI in 2022 and went through September this year. I discussed the old and new versions earlier today, shredding the whole thing: The Collapse of the Health Insurance CPI (How it Became Chickenshit).
I’ll just say here that the health insurance CPI jumped by 1.1% in October from September, instead of plunging 4% month-to-month, as it had done in the prior months; and that the new version of this index is “smoothened” via a moving average, so the impact of the new positive values is slowed by the moving average, but should get picked up over the next months; it might rise by about 2% in November and by about 3% in December, my rough guess.
Here is the infamous chart of the Health Insurance CPI as index values, and that little hook at the bottom is the 1.1% increase that will increase over the next few months (this chart shows how the index has turned to chickenshit, technical term):
Services CPI by category.
The table is sorted by weight of each service category in the overall CPI. The CPI for medical services is the third largest item, with a weight of 6.3% in overall CPI, and over 10% in the services CPI. The year-over-year drop of 2.0% — though actual expenses medical care services have risen – was caused by 34% year-over-year collapse of the health insurance CPI within it. Note the spike in motor vehicle insurance.
|Major Services without Energy||Weight in CPI||MoM||YoY|
|Services without Energy||61.7%||0.3%||5.5%|
|Owner’s equivalent of rent||25.7%||0.4%||6.8%|
|Rent of primary residence||7.6%||0.5%||7.2%|
|Medical care services & insurance||6.3%||0.3%||-2.0%|
|Food services (food away from home)||4.8%||0.4%||5.4%|
|Education and communication services||4.8%||0.0%||2.3%|
|Recreation services, admission, movies, concerts, sports events, club memberships||3.1%||0.1%||5.7%|
|Motor vehicle insurance||2.8%||1.9%||19.2%|
|Other personal services (dry-cleaning, haircuts, legal services…)||1.5%||0.3%||6.7%|
|Motor vehicle maintenance & repair||1.1%||0.2%||9.6%|
|Water, sewer, trash collection services||1.1%||0.3%||5.3%|
|Hotels, motels, etc.||1.0%||-2.9%||0.8%|
|Pet services, including veterinary||0.6%||0.6%||7.3%|
|Tenants’ & Household insurance||0.4%||0.4%||2.9%|
|Video and audio services, cable||0.3%||0.5%||-4.6%|
|Car and truck rental||0.1%||-1.5%||-9.6%|
|Postage & delivery services||0.1%||-0.9%||0.8%|
Durable goods prices continue to drop, after huge spike.
The CPI for durable goods, after blowing out during the period of shortages, has been falling for months. In October, it fell by 0.43% from September and by 2.2% year-over er-year.
The index is dominated by new and used vehicles, information technology products (computers, smartphones, home network equipment, etc.), appliances, furniture, etc.
This chart shows the price level of the index, not the percent change:
|Durable goods by category||MoM||YoY|
|Durable goods overall||-0.4%||-2.2%|
|Information technology (computers, smartphones, etc.)||-1.4%||-7.6%|
|Sporting goods (bicycles, equipment, etc.)||0.4%||-1.2%|
|Household furnishings (furniture, appliances, floor coverings, tools)||-0.2%||0.7%|
New vehicles CPI inched down by 0.1% in October from September, after rising two months in a row. Year-over-year, the index rose 1.9%.
For many years before the pandemic, the new vehicle CPI was essentially flat with some ups and downs, despite large increases of actual vehicle prices. This is the effect of “hedonic quality adjustments” applied to the CPIs for new and used vehicles and also other products (here’s my chart and detailed explanation of hedonic quality adjustments).
The pandemic price spike blew all this apart. Between February 2020 and April 2023, the CPI for new vehicles jumped by a total of 25%. Since then, it has remained roughly flat:
Used vehicle CPI fell by 0.8% in October and by 7.1% year-over-year.
From February 2020 through January 2022, the index spiked by 55%. Since that peak, it has dropped by nearly 13%. But it’s still up by 34% from February 2020.
Note the effects of the hedonic quality adjustments in keeping prices level in the years before the pandemic even as actual used vehicle prices rose:
Food at home: prices ticking up again from very high levels.
The CPI for food bought at grocery stores and markets rose by 0.3% for the months and by 2.1% year-over-year. Those are relatively moderate price increases, but they are on top of very high prices, after the 24% spike during the pandemic through 2022.
Category by category, there are big differences, with meat prices now surging again, while prices in other categories are dropping. Baby formula is on the rise again as well.
|Food at home by category||MoM||YoY|
|Overall Food at home||0.3%||2.1%|
|Cereals and bakery products||0.2%||4.2%|
|Beef and veal||1.2%||8.9%|
|Fish and seafood||-0.1%||-1.8%|
|Dairy and related products||0.3%||-0.4%|
|Juices and nonalcoholic drinks||-0.1%||3.3%|
|Fats and oils||2.3%||2.8%|
|Baby food & formula||1.0%||8.3%|
|Alcoholic beverages at home||0.2%||2.7%|
Energy prices plunged.
The CPI for energy plunged by 4.9% in October from September, and was down 6.2% year-over-year. Energy prices are very volatile, which is why they’re excluded from “core” inflation measures to see the underlying inflation.
These are energy products that consumers buy directly, such as motor fuel, natural gas piped to the home, heating oil, electricity services, firewood, etc.
Gasoline plunged 5.0% for the month after having risen all year. Year-over-year, it’s down 5.3%. But it’s down by 25% from the peak of the spike in June 2022. Gasoline accounts for about half of the total energy CPI.
Fuel prices – gasoline, diesel, jet fuel – eventually make their way into consumer products that are shipped by delivery van, truck, rail, or air as are nearly all consumer products. Jet fuel makes its way into services via air fares. These products and services are included in core CPI, which is how core CPI eventually reacts to energy costs, if the changes are big and persistent.
|CPI for Energy, by Category||MoM||YoY|
|Overall Energy CPI||-4.9%||-6.2%|
|Utility natural gas to home||1.2%||-15.8%|
|Heating oil, propane, kerosene, firewood||-3.4%||-17.1%|
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