Truflation US CPI Insights: October 2022

What a difference a month makes! The US continues to battle against rising prices, but cooling inflation remains a much-debated topic in the news. After a summer of jumbo rate rises, market volatility is back, and cracks are beginning to show in the economy, with the cost of living impacting businesses, the housing market and consumers. Let’s dive into the numbers and see what the data tells us.

The US Truflation CPI has dropped from 8.8% at the end of August to 8.5% at the end of September and today is at 8.1% on 12th October. It continues the downward trend we have seen in our numbers since June. The decline was driven by the following:

• Food continued to drop in part driven by commodity prices softening (Russian/Ukraine Grain deal calming markets) and consumers tightening their belts in terms of reduced demand/spending on food (especially outside the home).
• Housing fell from 8.8% to 8.7% due to the Fed’s rate hikes taking effect, with 15-year and 30-year fixed-rate mortgages ramping up to 6%, a level many new or would-be homeowners have never seen before.
• Transportation continued its drop this month, but this was not driven by prices at the pump, as these have remained relatively stable over the 45 days. It has declined due to vehicle prices dropping, particularly in the used car market.  There is also a general shift in consumer behavior from gasoline-powered vehicles to electric cars which will no doubt pose a risk to auto loans.
• Utilities were the only outlier, experiencing a marginal increase from 13.8% to 14.5%. It continues to marginally increase in October due to higher natural gas prices for utilities being passed onto consumers through higher bills.
• Our other CPI categories have remained relatively stable from September to October.

The macro data releases and bond market turbulence demonstrate that markets see further risks ahead. For example, in September:

• US Census Department data shows new home sales were down 29.6% YoY, with the inventory of homes for sale increased 28.2% YoY compared with 2021 (eight months supply at the current sales pace, the long-term average for months’ supply of homes is six months).
• The National Association of Realtors reported a 2% drop in pending home sales.
• The Bureau of Economic Analysis reported PCE Inflation continued to drop to 6.2%.
• The US dollar has appreciated by 15% over the last six months.

Currency strength should help US inflation drop further in the coming months and make imports cheaper. However, inflation has proved to be much more persistent, even with the Fed's three jumbo rate rises this summer, than most economists thought it would be. Supply and inventory levels are reducing in the US, and consumer demand is also softening as the cost of living and economic worries weigh on consumer confidence and spending.  Demand and growth now seem to be slowing in the US economy, especially in the housing market, but the real question is whether or not we will start seeing the effects of the rate rises in terms of unemployment.

The tight labor market continues to be the thorn in the Fed’s side, with demand drivers not mitigating in the way the Fed would like. Unemployment doesn’t look to be rising as the US economy continued to add more jobs in September, however, hidden in the BLS employment data are several things that point to weakening labour demand:

• Job openings fell at their sharpest rate since the start of the pandemic. Full-time jobs shrunk by 242,000 for the third month in a row.
• The US economy added 263,000 jobs in September, half the pace of 562,000 average monthly jobs growth in 2021!
• A recent trend in the household survey suggests an increase in job holders working multiple part-time jobs.  This might explain the mystery of why the projection of the job market is tight.
• Finally, the number of hours companies ask of their workers each week decreased to 34.5 hours, which is the lowest reading since April 2020! Weekly hours worked have been decreasing in 2022.

The employment data has made the market take the Fed’s ‘no-pivot’ message seriously, and further rate rises are on the cards. Whether it is 0.75 or 0.5 remains to be seen.  Many economic indicators suggest that demand is softening, which will bring down prices.  This is what we are seeing in October at Truflation.  We believe in having better real-time data to help consumers and businesses make better-informed decisions.

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Written by CeAnn Simpson

About Truflation

Truflation is an economic data aggregator serving independent, unbiased, real-time data on-chain and off-chain. Truflation’s mission is to help individuals, investors, companies, and institutions make more informed decisions by accessing independent and unbiased economic information.