Core CPI ex-Shelter: consistent with 2% PCE inflation
We’ve written repeatedly about shelter costs and their lagged effect relative to real-time prices. But the most recent core CPI really highlights this impact. Excluding the contribution of shelter to core CPI, that inflation metric has been running at between 2-2.4% for the last 9 months. Considering the historical spread between CPI and PCE (Personal Consumption Expenditures Price Index) – the latter being the Fed’s preferred metric – a 2.3% core CPI is roughly equivalent to a core PCE print of 2.0%. And ignoring the shelter component, core CPI actually saw deflation this past month.
Said differently, shelter was the main driver for core CPI – everything else in aggregate was modestly negative. We should certainly continue to expect bumps along the way, but the disinflationary trend looks set to kick into high gear once again with plenty of support still in the pipelines.