Wednesday Feature: CPI, Economy, 40 Days to Christmas

OK, the title is kind of funky, but these concepts do connect.

Yesterday, the Bureau of Labor Statistics released the Consumer Price Index (inflation report) for October, 2023. Good news? Maybe. A mixed bag? Definitely. Headlines win the day, and politically spun, it’s fascinating to see which numbers resonate. The full report/release is here: cpi October report 2023

At first glance, the report shows continued progress on slowing the rate of inflation.  To correct some, inflation is not down, it is slowing, and prices are not falling.  CPI (all items together) rose 0% (.4% prior month) month over month and 3.2% annually.  Removing more volatile components such as food and energy, prices rose .2% (.3% prior month) month over month and 4% annually. This is the so-called “core” measure.

What fascinates me is, and I’m old enough to have seen this trend, is the political spin between core inflation and “headline” inflation or CPI.  Early and throughout 2021 and 2022, the voices and talking “fin heads” were saying CPI is not terribly meaningful because energy is so volatile.  Recall, energy was marching steadily “up” in 2021-2022.  At that time, core was the real measure to pay attention to (or so some would say). In other words, ignore the headline numbers.

Today, I’m hearing “look at the headline number!” Things are going in the right direction!  Core doesn’t matter as much because it’s the total CPI that matters.  In economic policy and I see the same in health policy, what is up is now down, what is down is now up, etc. is often, the way the game is played.

Bobbing back to the title, we have 40 days left until Christmas and is there anything about the upcoming holiday season that can be divined from the CPI report?  The answer is “yes”.  Prices remain “up”, just a bit less so.  Price increases compound and until (heaven forbid), we have a change in the relationship between supply and demand (right now, demand is hotter than supply), prices will remain elevated.  Prices won’t decrease without a larger shift in demand (recession) or a dramatic increase in supply, with constant demand.

What has helped inflation most recent is a reduction in the demand for energy, notably, petroleum.  A modest increase in supply occurred in the U.S. via petroleum releases from the Strategic Petroleum Reserve (increase in supply). The energy index fell 2.5% over the month as a 5.0-percent decline in the gasoline index more than offset increases in other energy
components.

What continues to confound more reduction is food and shelter. The food index increased 0.3 percent in October, after rising 0.2 percent in September. The index for food at home increased 0.3 percent over the month while the index for food
away from home (eating out) rose 0.4 percent.

The shelter (housing cost) index rose 0.3 percent in October, after rising 0.6 percent the previous month. The index for rent rose 0.5 percent in October, and the index for owners’ equivalent rent increased 0.4 percent over the month. The lodging away from home index decreased 2.5 percent (hotel, motel).

Back to the concept of 40 days from Christmas and the meaning in this report. I’m in favor of a White Christmas but I honestly think, this could be a “meh” Christmas.  Read past the chart of categorical expenses (I highlighted the biggies) for my quick Christmas outlook (shopping) season.  And of course, as you read down, remember the most important message in this post, HAPPY HUMP DAY! 

So why might Christmas be “meh” this year (rhetorical question)?

• Household debt is the highest it’s been in decades and credit card debt, the highest ever.  Full data here: https://www.newyorkfed.org/microeconomics/hhdc
• Food and shelter, along with energy, are primary expenditure areas for any household. While energy is down a touch it likely won’t remain on the slide it’s been. If there is a hold or a pivot up, energy will add more to the inflation picture again as its cost are not just at the consumer end but at the producer end as well. With these items consuming a large and growing (yes, still growing) share of a household budget, less room exists for Christmas goodies.  And, with the credit card balance already bulging, less credit availability means less $$$ for goodies. Darn, I sound awfully Grinch-like.
• Because so much of our non-essential consumption is based on sentiment (how we feel v. sentimental, which is a holiday feeling), I turned to an economic indicator favorite of mine for additional insight – the Conference Board, home of the Consumer Confidence Index (https://www.conference-board.org/press/consumer-holiday-spending-2023).  Here’s their take (below)…

According to The Conference Board Holiday Spending Survey, US consumers plan to spend an average of $985 on holiday-related items in 2023, less than the $1,006 reported in 2022. As part of this total, consumers intend to spend an average of $654 on holiday gifts, up 6.7% from $613 last year. By contrast, consumers expect to spend much less on holiday-related non-gift items this year—only $330 compared to $393 in 2022, a 16% decline.