Pro Perspectives 12/12/22

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December 12, 2022
Tomorrow we'll hear from the Bureau of Labor Statistics on November inflation.
And then the Fed will decide on interest rates on Wednesday.
Going into this, the Fed's favored measure of inflation expectations is at the lowest level since the July meeting.
That July reference is an interesting one.  As you might recall, it was in the July post-FOMC press conference, that Jerome Powell said they had reached the neutral level on rates, and indicated that they might be ready to sit and watch. Of course, just hours later, the Democrat-led White House and Congress decided it would do another massive fiscal spend.
That said, within the fiscal largesse, maybe the most dangerous to the inflation outlook was Biden's plan to cancel student loan debt.  That has since been struck down in the courts.  And that has, importantly, removed the threat of seeing half a trillion dollars worth of consumer liabilities, become consumption.
So, here we are five months later, and it's clear that inflation peaked in June.
Key components of the CPI index have since been falling in price.  But we have yet to see that reflect in a negative monthly inflation number.
That said, in Powell's November post-FOMC press conference, he said "good evidence" of inflation coming down decisively, would require "a series of down monthly readings."
We may get one tomorrow.  That's deflation.
Let's take a look at some inputs into CPI that we know.
First, gas prices:  The Energy Information Administration (EIA) does a weekly survey of gas stations across the country.  Those survey results show a decline in gas prices by about 6% in November (and down 27% since June). Transportation carries almost a 1/5th weighting in the CPI calculation.
Used Cars:  The Manheim used car price index was down for a sixth consecutive month.
New Car prices were up in November, but inventory levels have hit the highest levels since May of 2021 (which should put downward pressure on prices).
Rents:  The Apartment List Rent Report showed a third consecutive monthly decline in rents.
House prices: says the median house price fell 2.1% from October to November.  That's down 8% from the June peak.  What about mortgage rates?  Mortgage rates finished November about 50 basis points lower than the month prior. 
As we've discussed, the year-over-year headline number gets the media's attention, but that's measuring against old data.  It will remain high for many months, even if the month-to-month change in prices were to fall.
So, the important number to watch tomorrow will be the (headline) monthly change in prices.