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United States: Is disinflation real?

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United States: Is disinflation real?

October CPI was an important milestone, but we aren't yet out the woods

Chris Marsh
Nov 23, 2022
∙ Paid
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  • US CPI for October revealed continued disinflation in durables goods and some sign of service sector weakness;

  • However, medical services distorted service inflation downward—something unlikely to be repeated in coming months.

  • While the seasonality of other services could also be distorting downward sequential readings;

  • Overall, it will take more time to be confident that disinflation is real.

The October CPI marked the first truly weak Core CPI reading post-pandemic, with Core at +0.27%MoM (+0.5%MoM expected and +0.6%MoM prior.)

There are a number of signs of disinflation, such as:

  • First, the median and diffusion of the full range of 234 product categories (including food and energy) are now well below their 12-month moving averages. The diffusion is about 30% and median 3%MoM (annualized). A diffusion of 30% means roughly two-thirds of categories are seeing sequentially positive inflation over the month (seasonally adjusted) with one-third negative. Though noisy, the diffusion averaged about 20% pre-pandemic and nearer to 40% pre-GFC, making the current reading somewhere between the two.

  • Second, looking within Core products, the 32 service categories are now running about 4.5%MoMA (with 12-month average of 4.7%) while the 50 non-service core products (durables) are at only 2.5%MoMA (compared to 9.1%MoM on average over the past 2 months.)

In other words, durable goods are disinflating fast, while services remain close to their peak still and well above pre-pandemic norms.

Data Chart

Decomposing further

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