The path of US inflation in 2023 may have more surprises in store after a year in which consumers suffered the biggest cost-of-living hit in 40 years, spurring steep interest-rate hikes by the Federal Reserve and spooking investors.
The November consumer price index due Tuesday, the final report of 2022, is projected to show that while inflation is moderating, it’s running at about three times its pre-pandemic pace. Excluding food and energy, the CPI is seen rising 0.3% for a second month, and 6.1% from a year ago.
The report will reinforce the narrative that inflation has peaked, said Aneta Markowska, chief financial economist at Jefferies LLC. But “there’s still going be some potholes — at least — that we hit in the next few months in terms of the inflation outlook.”
The trajectory of inflation next year will depend on whether there’s further tempering in core goods prices, when and how much rents cool and to what extent wage growth — particularly in services — moderates.
Here’s a look at what economists are expecting for the CPI in November and the months ahead:
Prices of used cars and medical care services are expected to decline, with the latter largely reflecting updated source data that drove a record drop in the health insurance price index in the prior month’s report.
Shelter, however, will remain a big driver of inflation. The October CPI showed a welcome slowdown in rent as well as owners’ equivalent rent, which posted the smallest monthly gain since July. But given the size of the pullback, Oscar Munoz, US macro strategist at TD Securities, said he’s expecting a small bounce in November. Economists see the housing components as a wild card for the month.
Small categories could also see some reverals after outsize moves in the prior month. For instance, the cost of hotel stays, which surged 5.6% in October, are expected to ease or even decline.
Apparel prices will also likely drop for a third month amid high inventory and heavy discounting heading into the holiday season, Munoz said.
Meantime, gasoline prices, which on a daily basis have fallen steadily since early last month, are not only expected to be a drag on the November headline figure, but may also help produce the first decline in CPI since 2020 when the December data are released.
Goods, Housing
Fed Chair Jerome Powell in a speech last month broke down his approach to inflation into three main categories: core goods, housing and core services ex-housing. While his speech dove into the particulars of one of the Fed’s preferred inflation measures — the core personal consumption expenditures price index — it’s helpful to analyze the path of CPI in similar terms.
In the near-term, economists expect to see a continuation of the pullback in prices for core goods. Commodities excluding food and energy dropped 0.4% in October after no change in the prior month.