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Now that the market has digested the CPI data, I’d like to o...

Now that the market has digested the CPI data, I’d like to offer up a more nuanced take on what’s going on with inflation, and where it might be headed.

I’ll skip re-hashing the headlines and instead look at a couple of internals.

Obviously not a prediction, but an illustration of the relationship between the core components.

And this relationship suggests to me that we will not see core CPI relief until OER peaks and flattens/declines.

Till then, the Fed will keep chasing its own tail into recession.


In other words, if YoY OER were to keep going to 7%, we would need to see a -4.66% decline in the weighted sum of all other non-rent core components for a flat MoM core print.

For an 8% YoY OER, we would need a -5.34% decline in the weighted sum of non-rent core components.

Given the lags mentioned above, hitting a 7 or 8-handle OER peak increase is not out of question.

Since OER is 40% of core CPI, it would take a serious decline of all the other core components flat on a month over month basis just to stabilize core CPI at zero.

Now, we know that owner’s equivalent rent lags home price increases from anywhere between 12-18 months.

With July 2021 now 13-months in the rear-view mirror, we can expect for OER to peak very soon.

Let’s peel the onion a bit and look at home price appreciation. It appears to have peaked in June 2021.
Now that the market has digested the CPI data, I’d like to offer up a more nuanced take on what’s going on with inflation, and where it might be headed.    I’ll...
The monthly increase in owner’s equivalent rent, which was the biggest monthly increase since 1990, came in at .7%

YoY, the increase came in at 6.3%, the highest in since 1986.
Now that the market has digested the CPI data, I’d like to offer up a more nuanced take on what’s going on with inflation, and where it might be headed.    I’ll...
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