US CPI Preview: November 2023
Headline CPI growth expected to record a modest fall in November, whilst the core CPI is expected to see modest growth.
Headline CPI growth expected to fall slightly, with MoM growth again expected to be negative
I expect the headline CPI to record a small moderation in its annual growth rate in November, falling to 3.1%, from 3.2% in October. On a two decimal place basis, my forecast is for growth of 3.14%, indicating the potential for growth to also come in at a rounded 3.2%.
For the second consecutive month, MoM growth is expected to be negative. This MoM decline is again expected to be driven by the CPI energy commodities index, which comes on account of another large MoM fall in gasoline prices.
Monthly price growth is expected to be largely in-line with its historical average for a 2nd consecutive month.
Core CPI growth expected to rise slightly, with MoM growth expected to see a relative increase
After recording seven consecutive months of decelerating annual price growth, I forecast a modest increase in annual core CPI growth in November, with growth rising from 4.0% in October, to 4.1% (4.10%) in November.
After seeing MoM price growth moderate in comparison to its respective 2010-19 average for six consecutive months, I forecast an increase in MoM core CPI growth versus its historical average in November. Despite this expected increase, I am not currently anticipating a sustained increase in price pressures or a “second wave” of inflation.
Headline in-line with consensus, core slightly above
In reference to the consensus forecasts, my headline CPI forecast of 3.1% is in-line with the consensus forecast.
At 4.1%, my core CPI forecast is slightly above the consensus forecast of 4.0%.
Spot market rent adjusted CPI inflation metrics expected to rise, but remain <2% in November
On a spot market rent adjusted basis, I am forecasting both headline and core CPI inflation to see faster YoY growth in November, but for it to remain below 2% YoY.
For the headline CPI adjusted for spot market rents, I forecast a modest increase in annual price growth, from 1.3% in October, to 1.4% in November. For the core CPI, I forecast a more material increase, from 1.6% in October, to 1.9% in November.
For the purposes of conducting a spot market rent adjustment, I use a simple average of Apartment List and Zillow rental price data.
Breaking down the CPI forecast in greater detail
Used car prices expected to fall again in November
For the last four months, CPI used car and truck prices have recorded MoM declines — I expect November to mark the fifth consecutive month of falling prices.
When analysing the potential MoM move in CPI used car & truck prices, it’s important to realise that the CPI’s retail prices tend to lag wholesale prices (as measured by the Manheim Index), by two months.
While this points to a 0.1% increase in CPI used car & truck prices in November, there’s another important factor to consider — the seasonality of retail prices.
While retail and wholesale prices tend to be significantly directionally correlated on a two-month lagged basis, the seasonality that is present in retail prices can result in material MoM divergences between the two items.
From 2010-present, retail prices tend to be materially weaker than the move implied by wholesale prices across September to November. The historical divergence implies a 0.6% decline in CPI used car & truck prices in November.
Though given that: 1) retail prices continue to remain somewhat elevated versus wholesale prices; and 2) wholesale prices have continued to weaken significantly in October and November, I am incorporating a slightly larger MoM decline in November, of 0.9%.
Gasoline prices plunge in November, which is expected to put major downward pressure on monthly headline CPI growth
For the second consecutive month, national average regular gasoline prices plunged — according to AAA data, they fell 7.8% in November, following a 5.6% decline in October. Should gasoline prices remain around current levels, then another significant MoM decline in gasoline prices appears likely to occur again in December.
This is expected to result in another large MoM decline in the CPI’s energy commodities index, which is expected to represent the largest single driver of downward price pressure for the headline CPI in November.
Rent based indexes expected to show some additional moderation, as spot market rents continue to show a major deceleration
On account of the major deceleration that has been seen in underlying spot market rents, the CPI’s rent based indexes are expected to record a further moderation in their annual growth in November — I expect YoY growth in owners’ equivalent rent (OER) to fall to 6.6% (from 6.8%), and rent of primary residence (RPR) to fall to 6.9% (from 7.2%).
Given that OER and RPR are both lagging and smoothed by nature, I anticipate MoM growth to only gradually return to its historical average. This means that YoY growth in OER and RPR is expected to remain materially elevated for many months to come.
While expected to take a material length of time to fully decelerate, the medium-term outlook for a continued deceleration in OER and RPR continues to be bolstered by the ongoing moves in underlying spot market rents — the Zillow Observed Rent Index (ZORI) recorded a MoM decline in October, whilst the Apartment List Rent Index (ALRI) recorded its eighth consecutive month of MoM growth that was below its respective 2017-19 average in November.
The potential for some services related items to confirm disinflationary trends
In November, there’s the potential for some services related items to indicate a clear disinflationary trend.
One such category, is CPI internet services. After recording elevated MoM growth in nearly every month across October 2022 to August 2023, the past two months have seen MoM growth fall below the respective 2010-19 averages. This has taken YoY growth from a peak of 5.2% in August, to 4.4% in October.
While I am forecasting higher relative MoM growth in November on account of data going back to July, should MoM growth again be below its historical average in November, or largely in-line with it, then this would strongly suggest that a new disinflationary trend is now in place.
The second key category to watch, is CPI motor vehicle maintenance.
After seeing significantly elevated MoM growth in comparison to the respective 2010-19 monthly averages across most of 2022 and 2023, MoM growth has also been below its respective historical average over the past two months.
While I am again forecasting relatively stronger MoM growth in November on account of data going back to July, should relatively slower growth be repeated for a third consecutive month, then this would suggest that a new trend of more moderate price growth is now in place.
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