CPI Preview and Owners’ equivalent rent

Tomorrow the BLS will release inflation data for July. The consensus is for a 0.6% increase in CPI, and a 0.2% increase in core CPI. The consensus is for CPI to be up 3.6% year-over-year (up from 3.3% in July) and core CPI to be up 4.3% YoY (down from 4.7% in July).

Here is a preview from Goldman Sachs economists Manuel Abecasis and Spencer Hill:

We expect a 0.24% increase in August core CPI (vs. 0.2% consensus), corresponding to a year-over-year rate of 4.30% (vs. 4.3% consensus). We expect a 0.63% increase in August headline CPI (vs. 0.6% consensus), which corresponds to a year-over-year rate of 3.58% (vs. 3.6% consensus).

A key component to watch is the year-over-year change in shelter. Asking rents are mostly flat year-over-year, but renewals are still increasing – and this has kept the BLS measure of shelter inflation from falling faster.

Last month the BLS noted: “The index for shelter was by far the largest contributor to the monthly all items increase,
accounting for over 90 percent of the increase, with the index for motor vehicle insurance also
contributing.”

Here is a graph of the year-over-year change in shelter from the CPI report (through July) and housing from the PCE report (through June 2023)

Shelter was up 7.7% year-over-year in July, down from 7.8% in June. Housing (PCE) was up 8.0% YoY in June, down from 8.3% in May.