Taps Coogan – February 10th, 2022

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Later today the BLS will report the CPI figures for the month of January, probably the most important economic data series in the US at this point.

As the following chart from David Ingles highlights, median estimates for headline CPI in January are 7.3%, up briskly from the 7% print in December.

Actual headline CPI has exceeded the median analyst forecast every month since last August. With most commodities, including oil, copper, wheat, and coal, still pushing-to-or-holding-near highs, and with the CPI’s Owner Equivalent Rent component still a criminally long lagging measure of the large rent increases seen in the past year, there is little reason to expect that inflation has already peaked.

Nonetheless, the drivers of inflation are starting to moderate.

The Fed is finally ending its latest iteration of QE next month and probably raising rates. At least one chamber of Congress is going to go to Republicans by the end of the year – somewhat constraining pie-in-the-sky spending bills. Some shipping rates are moderating, automotive production is starting to normalize, and oil and gas production is inching higher again. People are increasingly getting back to some perverse version of normal life as exasperation with lockdowns and restrictions finally sets in.

With inflation poised to make year-over-year comparisons to increasingly high inflation months this Spring, it’s going to be difficult for the statistic to keep showing year-over-year acceleration. While inflation never ‘peaks’ in the sense that the dollar almost always loses purchasing power, the rate at which our purchasing power evaporates should start slowing down a bit in the coming months.

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