AIER’s daily price index falls marginally in August 2024

By Peter C. Earle

The American Institute for Economic Research’s daily price index (EPI) fell 0.13% to 290.9 in August 2024, the same level it held in both April and May 2024. This is the second monthly decline recorded by the index. this year, with the previous one coming in June.

AIER daily price index vs. US Consumer Price Index (NSA, 1987 = 100)

Of the twenty-four EPI constituents, seven declined, one remained unchanged from the previous month, and sixteen increased in price.

On September 11, 2024, the US Bureau of Labor Statistics (BLS) released consumer price index (CPI) data for August 2024. The monthly CPI number rose 0.2 percent, meeting survey forecasts. The core monthly CPI number rose 0.3 percent, higher than the forecast increase of 0.2 percent.

In August 2024, shelter costs rose 0.5 percent, contributing significantly to the overall increase in the index for all items, while food prices rose 0.1 percent, following a 0.2 percent increase last month. Food consumed outside the home increased by 0.3%, while food prices at home remained stable. Energy costs saw a notable drop of 0.8%, after remaining unchanged in the previous month.

Excluding food and energy, the month-on-month core index rose 0.3 percent in August, slightly higher than July’s 0.2 percent gain. Gains in many of the expected areas contributed, some of which fall into the Fed’s closely watched “supercore” category: shelters, airfares, auto insurance, education and clothing. On the other hand, categories such as used cars and trucks, home furnishings, health care, communications and recreation posted declines, all reflecting a mixed landscape for consumer prices.

August 2024 US headline and core CPI month-over-month (2014 – present)

In year-over-year data, headline CPI rose 2.5 percent, which met forecasts. Year-on-year core CPI rose 3.2 percent, meeting the forecast of 3.2 percent.

August 2024 US CPI headline and base year-over-year (2014 – present)

In the 12 months to August, the all-items index rose 2.5%, marking the slowest year-on-year increase since February 2021, while the core index (excluding food and energy) rose with 3.2%. Energy prices fell significantly by 4.0 percent over the past year, in contrast to a 2.1 percent increase in the food index.

Over the past 12 months, the index for all items except food and energy rose 3.2 percent. The shelter index rose 5.2%, contributing more than 70% of the total increase in the index for all items except food and energy. Other significant increases over the past year include auto insurance (up 16.5 percent), health care (up 3.0 percent), recreation (up 1.6 percent) and education (up 3.1 percent).

While commodity disinflation remains persistent (despite rising transportation costs for much of the past year), housing rents and auto insurance prices remain high. Historically, changes in commodity prices lead to changes in the price of underlying commodity inflation by six to twelve months. Given that transport costs have increased since mid-2023, we would expect them to be reflected in commodity prices by now. That doesn’t appear to have happened yet, which suggests that firms are absorbing these rising costs and could explain why S&P profit margins have fallen over the past quarter or two. If true, the willingness of private companies to eat up higher freight costs would indicate that inflationary expectations are firmly anchored — at least in corporate boardrooms and on loading docks. If this is the case, however, it suggests that in the future firms will have limited ability to pass on increased costs. With the U.S. savings rate nearing an all-time low and consumer hardship increasing, the pricing power of U.S. companies may also be at or near lows.

Looking at persistent inflation in auto and home insurance, it’s best to remember that these sectors are only marginally affected by the business cycle. Even if unemployment were to rise substantially over the next 12 months, inflation in those categories is likely to remain robust. In addition, Medicare costs, which are also acyclical, will increase next year.

While there was some good news in the August CPI release, two tentative conclusions of a somewhat less positive nature can be drawn. First, in light of today’s numbers, the likelihood of a 50 basis point rate cut at the September 18 meeting of the Federal Open Market Committee (FOMC) has all but disappeared. And second, that inflation in the United States will end in 2024 above the Fed’s target range. Therefore, the justifications for easing monetary policy over the next quarter or two are likely to come only from worsening labor market conditions.

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Editor’s note: The abstracts for this article were chosen by the editors of Seeking Alpha.