Payden & Rygel: Not Dead Yet - Monthly Change in Core US CPI

Payden & Rygel: Not Dead Yet - Monthly Change in Core US CPI

August 19, 2024

Inflation United States
Inflatie (04)

The July U.S. CPI (Consumer Price Index) report showed that underlying inflation has moderated over the last year. Core CPOI, excluding volatile food and energy components, slowed to 3.2% year-over-year - the softest reading in three years. Bond bulls and monetary policy doves tout the progress as a reason why the Fed should begin cutting rates, perhaps even substantially.

We aren't so sure.

Each month within the CPI report, some components beyond food and energy swing sharply and create noise. For example, the shelter component decelerated in June, while in July, shelter rebounded.

Our preferred way around the noise problem is to follow the signal provided by the Median CPI. The median price change in July was up 0.3% and 4% on a trailing 12 month basis. Softer, sure, compared to readings in Q1 2024, but median CPI in July advanced at a month-to-month rate unseen last cycle, and the year-over-year reading is not soft enough to warrant deep cuts in the policy rate.

Or, as a clever British comedy troupe might have written, inflation is 'not dead yet'.

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