Truck services

Inflation in services, housing, food and new vehicles becomes OMSOSH as the purchasing power of the dollar goes to hell

Used vehicle prices continue to decline after a ridiculous spike. But the decline in gasoline prices was “transient,” as we are now learning at the pumps.

By Wolf Richter for WOLF STREET.

The main measure of the dollar’s declining purchasing power, the Consumer Price Index (CPI), released today confirmed that inflation is spreading deeper into the economy and tearing services apart.

While some product categories lost some inflation, such as used vehicles and gasoline, others rebounded, such as housing, food, new vehicles and fares aerial. It’s Inflation Whac-A-Mole’s arcade game in full swing, ridiculing the Fed’s assertion last year that it was temporary or transitory, when that horror show is now fully integrated into the US economy.

The headline consumer price index (CPI-U) jumped 8.3% in April from a year ago, the second worst since 1981, slightly less scorching than the peak of 8.5% in March, according to data released by the Bureau of Labor Statistics today. On a month-to-month basis, the CPI jumped 0.3%.

The CPI’s year-over-year reading is never a smooth line, but zigzags up and down, as you can see in the chart above, because the year-over-year reading The other depends on two factors: last year’s base figure, which creates the ‘base effect’, and the current figure.

The index itself, not the year-over-year change in the index, is not subject to the base effect and shows where this horror show and its cumulative effects are going:

For most people, real inflation is much worse because the CPI is slow to pick up on housing inflation, as we’ll see in a moment, and because the CPI is skewed towards big spenders, c ie higher income households. As Fed Vice Chairman Lael Brainard pointed out earlier this year, low-income households are facing inflation well above the CPI, and they’re feeling it a lot more because they’re spending the most of their income in basic necessities, where price increases have been particularly severe.

WHOOSH becomes the purchasing power of the dollar.

CPI inflation tracks the loss of the purchasing power of the consumer’s dollar, including the purchasing power of labor. It’s not a sign of growth or wealth or anything. In April, the purchasing power of $100 in January 2000 fell to $58.39, and that’s why these kinds of price hikes are ruining the mood of American consumers:

CPI inflation in services is soaring.

The CPI for services jumped 0.8% in April compared to March, accelerating sharply in recent months. This pushed the year-over-year increase to 5.4%, the worst since 1991. This includes housing costs, which we’ll get to in a moment, as well as other items, such as:

  • Health insurance: +10.4%
  • Air fares: +33%
  • Accommodation in hotels, motels: +22.6%
  • Car and truck rental: +10.4%
  • Delivery services: +13.9%
  • Laundry and pressing services: +10.3%

CPIs for housing costs are jumping, trying to catch up.

The CPI for “housing” is the largest component of the overall CPI, representing a basket of services designed to reflect the costs of housing as a service. It represents 32.5% of the total CPI. The most important components of this basket are the “rent of the principal residence”, which represents 7.3% of the total CPI, and the “rent of equivalent residence of the owner”, which represents 23.8% of the Total CPI.

“Rent of the main residence” jumped 0.6% for the month and 4.8% year-on-year (red in the chart below). This follows what tenants have reported as a change in their actual rent payments, including in rent-controlled apartments.

“Equivalent rent owner of residences” jumped 0.5% for the month and 4.8% year-over-year (green line). This tracks the costs of home ownership as a service, based on what homeowners say their home would be rented for.

Both measures are always lower than the overall CPI and, therefore, are always now CPI, just less than before.

Both of these measures of rents are lagging and will continue to rise as they catch up, even if housing inflation slows down a bit over the next 12 months. Thus, these housing components which account for almost a third of the CPI will fuel CPI inflation through 2023 (my discussion of this phenomenon).

“Ask for rents” on the other hand, to follow advertised rents and measure what owners are asking for their apartments and houses that they have rented out. They do not reflect the actual rents paid by tenants. But they show where the market is “today,” and those asking rents are hot. The Zillow Rent Index jumped 16.8% year-on-year, despite March’s slight decline (latest data available). Even though “primary residence rent” (purple) and “equivalent owner rent” (green) are now trying to catch up, they have a lot of catching up to do, and they are still catching up, but with a lag:

The cost of buying a house rose 19.8% year over year, according to the Case-Shiller home price index (purple line below), reflecting the unleashed mania for America’s most splendid housing bubbles.

The CPI does not track the cost of buying a house (an asset); but attempts to track the cost of the service provided by a dwelling, i.e. “housing”, which it does with its “equivalent or owner’s rent” (red). Both indices are set at 100 for January 2000:

Inflation of durable goods relative to non-durable goods.

The CPI for Durable Goods – new vehicles, used vehicles, consumer electronics, furniture, appliances, etc. – was roughly stable in April compared to March. Year-on-year, it increased by 14.0% (red line). The past five months had been the worst year-on-year spikes in monthly data history dating back to the 1950s amid ridiculous price spikes for used and new vehicles.

The CPI for non-durable goods – dominated by food, energy and household supplies – fell 2.5% for the month, reducing the year-on-year peak to 12.8%, the second worst since 1980 (purple line ):

CPI inflation “Food at home” rose 1.0% for the month and 10.8% year-over-year. Main categories and their year-over-year peaks of CPI inflation rates:

  • Cereals and cereal products: 11.9%
  • Beef and veal: 14.3%
  • Pork: 13.7%
  • Poultry: 15.3%
  • Fish and seafood: 11.9%
  • Eggs: 22.6%
  • Fresh fruit: 8.3%
  • Fresh vegetables: 6.2%
  • Dairy products and derivatives: 9.1%
  • Coffee: 13.5%
  • Fats and oils: 15.3%
  • Baby food: 13.0%

CPI “Out-of-home food” jumped 0.6% for the month and 7.2% year-over-year, the most since 1981. This includes all food eaten outside the home, snacks from vending machines to high-end restaurants to cafeteria foods.

Energy CPI fell in April from March, on a sharp decline in gasoline, now already averted by a new reality as gasoline and diesel prices hit a new high on Monday, making April’s decline ” transient”, to use Powell’s term. Compared to a year ago, the energy CPI jumped 30.3%. This energy CPI weighs 8.3% of the overall CPI. Some strong points:

  • Gasoline: -6.1% for the month, but +43.6% year-on-year.
  • Utility natural gas at home: +3.1% over the month and +22.7% over one year.
  • Electricity service: +0.7% for the month, +11.0% year-on-year.

The CPI of used vehicles fell for the third month in a row from the previous month, but this time by just 0.4%, following the 3.8% drop in March, reversing a small part of last year’s ridiculous price surge. Year-on-year, it was still up 22.7%. This graph shows the index value (not year-over-year percentage change in index value):

The new CPI vehicle rose 1.1% for the month and 13.2% year-over-year, the worst spike on record in monthly data dating back to the 1950s, amid prices “above the sticker” widespread and nearly empty dealer lots:

“basic” CPI.

The “core” CPI, which excludes volatile commodity-dependent food and energy components, attempts to gauge inflation across the economy. It jumped 0.6% over the month, accelerating compared to the previous two months (0.3% and 0.5%), and 6.2% year-on-year, down a bit from March, and the second worst since 1982 :

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