Can the Federal Reserve rest assured? Beware of these CPI components "dragging their feet"!

At 8:30 p.m. on Thursday Beijing time, the market will welcome the latest CPI data for September. Dean Baker, a senior economist at the Center for Economic and Policy Research (CEPR), believes that the September CPI data is expected to continue to show a slowdown in inflation.

Here are his expectations for this inflation report and some key areas of price trends. Overall, he believes that the September CPI report may provide a positive inflation outlook for the U.S. economy. With the rental index gradually returning to normal levels, inflation will gradually approach the Federal Reserve's 2% target. Additionally, data from last week showed that the hourly wage growth rate is close to 4.0%, indicating healthy real wage growth, which will have an impact on the economy and the election.

Energy and Food Prices

Oil prices continued to fall in September, and food prices are expected to remain stable, which will keep the overall CPI increase expected to be lower than the core inflation level.

He pointed out that since January 2023, food prices have only risen by 1.2%. Although wholesale prices of some commodities (such as beef and milk) have increased, retailers, especially major supermarket chains Kroger and Albertsons seeking to merge in the current political environment, may be cautious about raising prices. In addition, supermarket profit margins are still higher than pre-pandemic levels, so they have the ability to absorb some cost increases.

Restaurant prices rose by 0.3% in August and have risen by 4.0% over the past year, mainly due to increased labor costs. Nevertheless, consumer resistance to high restaurant prices reported in the media has also forced some chain stores to slow down price increases or offer discounts, and it is expected that restaurant price inflation will ease in the coming year.

Rental Inflation Further Slows Down

Dean Baker pointed out that the rental index, after peaking in 2022, is gradually declining. Although rents rose by 0.4% in August and Owners' Equivalent Rent (OER) rose by 0.5%, these indices are expected to significantly slow down in September, possibly falling to 0.3% and 0.4% respectively.

Continued Decline in Car Prices

Prices of new and used cars have been gradually falling since last year. New car prices remained stable in August, while used car prices dropped by 1.0%. It is expected that new car prices may experience a slight decrease in September, while used car prices are more volatile and difficult to predict.

Medical Service Prices Expected to Rebound

Medical service prices fell by 0.1% in August and are expected to rebound by 0.3% in September. These services account for 8.2% of the core CPI, thus significantly impacting overall inflation.

Attention to Auto Insurance Prices

Auto insurance prices rose by 0.6% in August, a decrease from previous increases, but this index has risen by 16.5% over the past year. This index accounts for nearly 3.0% of the overall CPI and has a significant impact on inflation, especially against the backdrop of rising accident rates and worsening climate disasters.

Continued Decline in Prices of Supply Chain Commodities

Prices of commodities such as furniture, appliances, and automotive parts have significantly fallen since the rise in 2021-22. In August, furniture prices dropped by 1.0%, and it is expected that the prices of these items will continue to decline in September.