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But durable goods prices are falling, energy inflation is easing, food inflation is not so bad.
By Wolf Richter for WOLF STREET.
The Consumer Price Index (CPI) for February shows once again that services inflation is surging at its worst rate in four decades, while inflation in many categories of goods continues to decline:
- Service without energy service: Annual inflation soared by 7.3%, the highest in four decades, driven by housing, food services (meals away from home), auto insurance, repair services, airfares, pet services, hotels and delivery services.
- Meal at home: inflation rose at a slower pace in February than January (+0.3%). But year over year, it’s still +10.2%.
- Energy inflation overall fell month-on-month (-0.6%), which brought down the year-on-year inflation rate to +5.2%. Gasoline prices -2% over last year.
- Price of durable goods fell further month-on-month (-0.4%) and year-on-year (-1.8%), driven by lower prices for used vehicles and consumer electronics.
- Core CPI: accelerated to +0.5% month-over-month, third straight month of acceleration. Year over year: +5.5% (from 5.6%).
- overall CPI (CPI-U): +0.4% month over month, +6.0% year over year.
Energy no-services inflation soared to a four-decade high.
The CPI for energy non-services inflation jumped 7.3% in February year-on-year, the worst increase since 1982 and the third straight month above 7%, according to CPI data released today by the Bureau of Labor Statistics.
In services is where inflation is now raging and taking root. Nearly two-thirds of consumer spending goes to services:
Month-on-month, service-to-energy inflation surged by 0.6% in February from January. It has been in the 0.5% to 0.8% range for 12 months. In services is where inflation sticks. The green line is food for thought:
| Services without energy services, by category | Mama | YoY |
| Whole | 0.5% | 7.6% |
| Airline fares | 6.4% | 26.5% |
| Motor vehicle insurance | 0.9% | 14.5% |
| Motor vehicle maintenance & repair | 0.2% | 12.5% |
| Pet services, including veterinarians | 1.8% | 10.5% |
| Rent the main residence | 0.8% | 8.8% |
| Food service (food away from home) | 0.6% | 8.4% |
| Equivalent to the owner’s rent | 0.7% | 8.0% |
| Postal & delivery services | 0.2% | 7.7% |
| Hotels, motels, etc. | 2.3% | 6.7% |
| Leisure services, admission to movies, concerts, sporting events | 1.2% | 6.3% |
| Other personal services (dry-cleaning, haircut, legal services…) | 1.4% | 5.6% |
| Water service, sewerage, garbage collection | 0.8% | 5.2% |
| Video and audio services, cable | 1.6% | 5.1% |
| Medical care services | -0.7% | 2.1% |
| Telephone service | 0.0% | 1.8% |
| Renters & Household Insurance | -0.1% | 0.8% |
| Car and truck rental | -0.5% | -0.8% |
Note: Health insurance mega-down adjustment, part of “Medical care services.”
The BLS makes annual adjustments in estimating health insurance costs and then spreads those adjustments over the following 12 months. The first mega adjustment occurred in October and every month since (more details here).
In other words, for the 12 months to September 2022, the CPI overstated health insurance inflation (+28% yoy in Sept 2022), and now corrects this overestimation by spreading out a heavy adjustment for the 12 months to September 2023.
Without that mega-down adjustment, services CPI would have been worse over the last four months.
Due to this downward adjustment, the CPI for health insurance plunged 4.1% in February from January. Five months of the mega-adjustment reduced the year-over-year CPI rate for health insurance from pre-adjusted +28% in September to -4.7% in February.
But, but, but… the PCE price index, due for release at the end of March, which the Fed likes, describes health insurance inflation differently and has no adjustments. And in the PCE price index, services inflation has become aggressive.
The following is the change in health insurance CPI from month to month after adjustment:
CPI for housing as a service.
The CPI for housing as a service – “living space” – which in February was weighted at 34% of the total CPI, is based on the rental factor, especially “Rental of main residence” (weight: 7.5% of the total CPI) and “Owner equivalent rent of residence” (weight: 25.4% of the total CPI).
“Primary residence rental” tracks the actual rent paid by tenants on homes and apartments, including rent-controlled units. The survey follows large groups of the same housing units over time and tracks what the tenants in these units actually pay. So it reflects the actual rent paid by the tenant.
Not “ask for rent”. Other rental indexes, such as Zillow’s rent index, track “demanded rents,” which advertise rents from units that are still vacant in the rental market. When the asking rent is too high to satisfy the unit, the landlord can lower the asking rent. There has been an explosion in demand for rent during the pandemic. But rent is not very much, and proportionately not many people are actually paying the rent that is required.
“Rent equal to owner’s residence” tracking the cost of home ownership as a service, based on a large panel of homeowners who reported their home would be rented.
The two factors of rent soared:
- Primary residence rent: +0.8% for the month, +8.8% year-over-year, worst since 1982 (red)
- Owner Equivalent +0.7% for the month, +7.8% year-over-year, worst in data (green)
house pricesbased on the Case-Shiller House Price Index, peaking with the report called “June” then starting to decline [my version by city: The Most Splendid Housing Bubbles in America]. The most recent data points are the October, November, and December three-month moving averages (purple in the chart below).
The red line represents “owner-equivalent living rent”. Both rows are index values, not percent-change index values:
Food inflation.
CPI for “food at home” – store and market-bought food – up 0.3% in February from January, not as bad as the previous month. Year-over-year, the CPI for food at home rose 10.2%, the 12th month in a row with a year-over-year double-digit increase, but on a downward trend.
This CPI chart for food at home as an index value (not percent change) gives you an idea of the cumulative spike in food prices over the last two years: +20% since February 2021.
Inflation has fallen in many categories, but is heating up in some. The CPI for eggs jumped due to supply problems due to avian flu, but consumers went on a buyer’s strike, demand plummeted, and prices began to stabilize:
| Food at home by category | Mama | YoY |
| Whole Foods at home | 0.3% | 10.2% |
| Cereals and cereal products | -0.1% | 14.2% |
| Beef and veal | 0.6% | -1.4% |
| Pig | 0.7% | 1.5% |
| poultry | 0.1% | 9.5% |
| Fish and seafood | 1.5% | 4.6% |
| Egg | -6.7% | 55.4% |
| Milk and related products | 0.1% | 12.3% |
| Fresh fruit | 0.4% | 0.4% |
| Fresh vegetables | -0.7% | 5.3% |
| Juices and non-alcoholic drinks | 1.0% | 12.3% |
| Coffee | 0.3% | 11.4% |
| Fats and oils | 0.4% | 19.4% |
| Baby food & formula | 0.5% | 9.8% |
| Home aperitif | -0.1% | 4.3% |
Energy prices:
| CPI for Energy, by Category | Mama | YoY |
| Overall Energy CPI | -0.6% | 5.2% |
| Gas | 1.0% | -2.0% |
| Natural gas utilities to homes | -8.0% | 14.3% |
| Electrical service | 0.5% | 12.9% |
| Heating oil, propane, kerosene, firewood | -6.4% | 5.7% |
The CPI for gasoline as an index value (not percent change) describes a crazy two year spike that was only partially canceled out:
Price of durable goods.
The CPI for durable goods fell for the sixth month in a row, by 0.4% month-over-month. On a yearly basis, it fell 1.8%, the second straight month of annual declines, after a flat reading in December.
| Durable goods by category | Mama | YoY |
| Overall durable item | -0.4% | -1.8% |
| Information technology (computers, smartphones, etc.) | -0.9% | -12.0% |
| Used vehicles | -2.8% | -13.6% |
| Sports equipment (bikes, equipment, etc.) | 0.2% | 1.1% |
| New vehicle | 0.2% | 5.8% |
| Household furniture (furniture, appliances, floor coverings, tools) | 0.8% | 6.3% |
The CPI for durable goods, expressed as an index value (not as a percent change) indicates a large price spike from late 2020 to mid-2022. Prices began falling last fall, driven by sharp declines in used vehicles and consumer electronics :
“Core” CPI.
Year-over-year, core CPI, which excludes volatile food and energy products, jumped by 5.5%, but that was only slightly lower than January’s 5.6% increase.
Month-on-month, core CPI jumped by 0.5%, the third month in a row of acceleration, driven by high services inflation, and despite a drop in durable goods inflation. This is not going in the right direction:
Overall CPI: +14.4% in two years:
In the overall CPI as an index value that represents the price level — not the percentage change in the index value — we see that the overall price level has jumped by 14.4% over the last two years:
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