Inflation is still very sticky
With Core CPI above the Fed’s 2% target
This could be a MAJOR problem
A thread 🧵
With Core CPI above the Fed’s 2% target
This could be a MAJOR problem
A thread 🧵
2/ Core CPI is an inflation measure that excludes food and energy
You might wonder: why remove 2 essential categories?
You might wonder: why remove 2 essential categories?
3/ While critical, food and energy prices are highly volatile and often impacted by external events
Core CPI helps central banks like the Fed focus on underlying inflation trends
Which are less influenced by short-term shocks
Core CPI helps central banks like the Fed focus on underlying inflation trends
Which are less influenced by short-term shocks
4/ So, why is Core CPI still sticky today?
And is it likely to continue remaining elevated?
And is it likely to continue remaining elevated?
5/ Well, breaking down core CPI reveals that housing—classified as “shelter”—is the main driver of persistent inflation today
6/ While home prices rose sharply post-pandemic, they’ve cooled recently
Median home prices have trended lower
But the shelter CPI hasn’t fully reflected this due to lagging government data
Median home prices have trended lower
But the shelter CPI hasn’t fully reflected this due to lagging government data
7/ If we overlay existing home sales and shift it forward, we see that it predicts what home prices are going to do over the next 18 months
Today, it suggests home prices are likely to continue cooling off
High mortgage rates and a weaker economy are key contributors to this trend
Today, it suggests home prices are likely to continue cooling off
High mortgage rates and a weaker economy are key contributors to this trend
8/ This indicates shelter’s impact on core CPI may decline soon
Which should be a tailwind for the stock market
Which should be a tailwind for the stock market
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10/ Thanks for reading!
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