Services Inflation Worst since 1982, Food Inflation Worst since 1979, Housing CPI Heats Up. But Energy Prices Plunge, Some Durable Goods Drop: Inflation Whack A Mole

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    by Wolf Richter, Wolf Street:

    Inflation in services is now where the action is, not commodities or durable goods.

    Inflation as measured by the Consumer Price Index backed off a tad in July to a still ugly 8.5%, from the super-ugly 9.1% in June, as food prices continued to spike, but gasoline and natural gas prices fell sharply, and prices of durable goods backed off their crazy spike.

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    But inflation in services rose to 6.25%, the highest since 1982. The CPI for services is still below overall CPI and is still pulling down overall CPI. But it has been getting worse every month for 11 months, and as other price spikes back off, the services CPI pushes to the forefront. That’s how inflation works after it’s entrenched: it cycles from category to category and pops up in different places, while backing off for a while in other places.

    The headline Consumer Price Index (CPI-U), released today by the Bureau of Labor Statistics, was unchanged for the month, after two ugly month-to-month spikes, and rose by 8.5% year-over-year:

    Social Security COLA: CPI-W, the first month of three.

    The Consumer Price Index for “all urban wage earners & clerical workers” (CPI-W) backed off to a still horrible 9.1% in July. The average of the July, August, and September readings will be used to determine the COLAs for Social Security benefits in 2023, and July’s 9.1% is the first month in this average of three months:

    Services Inflation worsens.

    The CPI for services continued its relentless spike, rising by 0.37% in July from June and by 6.25% year-over-year, the worst increase since 1982.

    Some services, such as airfares, are indirectly influenced by commodities (fuel). Others, such as insurance, healthcare, housing (based on rental factors), etc. are not, and a decline in the prices of commodities don’t reduce inflation in these services.

    Inflation in services is now where the action is, and it’s very tough to get inflation in services under control:

    Service categories where CPI rose year-to-year:

    • Health insurance: +20.6%
    • Rent of primary residence: +6.3%
    • Rent, owner’s equivalent: +5.8%
    • Motor vehicle maintenance, repair: 8.1%
    • Auto insurance: +7.4%
    • Medical care services: +5.1%
    • Delivery services: +14.0%
    • Pet services, including veterinary: +9.3%
    • Airline fares: +27.7% (-7.8% monthly)
    • Hotels & motels: +1.0% (-2.7% monthly)
    • Other personal services (dry-cleaning, haircuts, legal services, etc.): 6.3%
    • Admission to movies, theaters, concerts: +6.2%
    • Video and audio services, including cable: +3.8%
    • Water, sewer, trash collection services: +4.4%

    Service categories where CPI fell/remained flat year-over-year:

    • Telephone services: unchanged
    • Car and truck rental: -11.9%
    • Admission to sporting events: -2.7% (but +4.9% monthly)

    “Core” CPI.

    The “core” CPI excludes the volatile commodities-dependent food and energy components to track inflation in the broader economy. Services are a big part of it. But so are durable goods.

    It rose by 0.3% in July from June, after the red-hot spike in June, and by 5.9% year-over-year, same as in June:

    Food prices spike worst since 1979, but shift among categories.

    The CPI for “food at home” – food bought in stores and at markets – spiked by 1.3% in July from June, and by 13.1% year-over-year, the worst spike since 1979.

    Food is one of the categories where inflation hits consumers in the face on a daily basis. And it hits people in the lower part of the income spectrum much harder because they spend a relatively bigger portion of their income on food.

    Inflation cycles from category to category, in a game of inflation Whac-A-Mole. For example, as you’ll see below, beef and pork prices, which had spiked over the past months, have now stabilized at very high levels, as folks changed to poultry. And with some demand shifting from beef and pork to poultry, poultry prices are spiking. And eventually, price spikes might return to beef. This is the same principle everywhere.

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