Truflation Data Insights: September 2022

It is back-to-school time, and Autumn is in the air, with inflation and the cost of living continuing to dominate the news cycle. The uncertainty about where we are in this tightening cycle keeps markets guessing, and the summer bear rally now seems a distant memory. Let’s dive into the numbers and see what the data tells us.

The US Truflation CPI continued its gradual decline of ~1% from August to September to the lowest inflation this year at 8.83%. Our index is now at its lowest level so far in 2022. This decline was driven by:

• Housing continued its marginal decrease, down 0.79% from August to September, led by declines in Rented. This demonstrates that the two Fed rate hikes have affected the housing market as more supply becomes available, prices/rents drop, and mortgages become more expensive.
• Transportation fell 1.67%, reflecting the continued drop in gasoline prices (from $4.19 to $3.75 a gallon, August to September).
• Food & Utilities were the only categories with marginal increases of 1.24% and 1.68%, respectively, from August to September.
• All other categories have held relatively stable from August to September in our CPI.

Furthermore, the decline in inflation is reinforced by another round of macro data releases, highlighting that Truflation continues to be the leading indicator of inflation. For example, in August:

• US Census Department data shows new home sales dropped 13.4%, with the supply of new homes up for sale increasing another 1.5%.
• National Association of Realtors reported a 1% drop in pending home sales.
• Bureau of Economic Analysis reported PCE Inflation dropped to 6.3%.

In the macro, there are contradictions around the relationship between unemployment and inflation. Here at Truflation, inflation rates continue to drop in the US, but unemployment rates haven’t increased due to the tight labor market. Will inflation reduce over time? Of course, it will. But does the unemployment rate need to increase for inflation to disappear? This is the real question economists are trying to answer.

Federal Reserve projections show that employment needs to rise to 4.1% for inflation to return to the ‘2%’ target by the end of 2024.  The current US jobless rate for August was 3.7%.  In an upcoming Brookings Paper on Economic Activity, Understanding U.S. Inflation During the COVID Era,  Laurence Ball, Economics Professor at John Hopkins, University says:

“But if either the labor market doesn’t behave, or expectations don’t behave, the small increase in unemployment the Fed projects won’t be enough. Either inflation will stay substantially higher, or we will have higher unemployment and a substantial economic slowdown.”

You can’t have it both ways. The US inflation rate will continue to drop, but economic indicators such as unemployment, GDP growth, and the federal funds rate must go ‘the wrong way’ to get inflation under control. It may be possible to moderate inflation without a substantial slowdown. However, the probability is very low, with many moving parts outside the Federal Reserve’s control.

Here at Truflation, we believe there is a way to get back to more ‘normal’ inflation in the US. Having better real-time data that can help consumers and businesses make better-informed decisions is one place to start.

Written by CeAnn Simpson

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About Truflation

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