US inflation rose by 0.3% month-over-month (0.31% for core inflation), which is consistent with the average annual trend.
Historical Context
Between 2015 and 2019, typical monthly price increases were 0.15% for the overall Consumer Price Index (CPI) and 0.17% for core inflation. The anomaly in 2020 - 2022, marked by a sharp transition from deflation to a 40-year high in inflation, can be excluded from our analysis. It's wiser to focus on the results of the past year.
Recent Trends
In 2023, the Consumer Price Index (CPI) has been increasing at a rate of 0.27% per month, with core inflation at 0.32%. Over the last six months, these numbers have been 0.27% and 0.26%, respectively, and for the last three months, it's 0.15% (attributed to the energy factor) and 0.27% for core inflation.
The Slowdown in the Growth Rate of Core Inflation
There has been no significant progress in slowing down inflation. The sharp decline in annual inflation can be fully explained by the high base effect of 2022. However, deceleration is evident when assessing core inflation (with an average monthly increase of 0.38% in the first half of 2023 and 0.26% in the second half of 2023). Nevertheless, it is still 1.5 - 1.6 times the normal rate.
The primary driver of this disturbance is the cost of housing, which includes hotels and rentals. Housing costs have been rising at a rate of 0.44% per month in the second half of 2023, compared to 0.57% in the first half of 2023 and the typical rate of 0.27% between 2015 and 2019.
Housing costs account for nearly 60% of the price growth over the last six months. If we break down the negative factors, most of the deviation from the 2015 - 2019 norm can be attributed to higher home value growth.
The core inflation over the past three and six months has generated price momentum in the range of 3.2% to 3.3% annually, resulting in an annualized inflation rate of 3.9%. This increase is primarily due to higher price increases in the first half of 2023.
Long-Term Perspective
There is still a long road ahead before prices return to normalcy, especially in housing, as home price growth is structural and long-term in nature. Consequently, high background inflation in this component is expected to persist above normal for an extended period.
Conclusion
In conclusion, inflation has slowed slightly but remains well above pre-2020 levels. Core inflation has also slowed but remains at a high level. The main driver is rising housing costs, with house prices making a significant contribution. Inflationary pressures are expected to persist, especially in housing, indicating a long road to price normalization.