Core inflation, which economists consider a leading indicator of future trends in inflation, is showing “no sign of falling,” according to an analysis by a former high-ranking Obama administration economist Tuesday.
Core inflation, which discounts the more-volatile food and energy indices, has climbed for three months in a row on both a month-over-month and three-month basis, according to calculations by Jason Furman, the former Chair of President Barack Obama’s Council of Economic Advisers, citing data from the Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI). The measure most recently climbed by 0.5% on a month-over-month basis, outpacing economist’s expectations of a 0.4% month-over-month climb, to 5.5% on an annual basis, according to the BLS. (RELATED: Inflation, Still Sky-High, Slightly Cools As Fed Weighs More Rate Hikes)
The data indicate that inflation is “still way too high and [showing] no sign of falling,” Furman said. “But for the banking turmoil this would have been a lock for a [half percentage point] increase at the next [Federal Reserve meeting]. I don’t recommend or expect that to happen. But I would be surprised & disappointed if the Fed pauses after 2 hot CPI reports in a row.”
The Federal Reserve was widely expected to continue to raise interest rates at its March 21-22 meeting, in a bid to blunt stubbornly high inflation, but the collapse of Silicon Valley Bank has prompted some economists to question whether the Fed might pause or altogether stop raising rates.
“Because the cost of energy affects everything else, today’s high energy prices are slowly pushing up prices everywhere else,” Heritage Foundation economist E.J. Antoni told the Daily Caller News Foundation. “CPI has run hotter than core CPI for every month of Biden’s presidency in large part because energy prices have risen so much and so quickly.”
Core CPI came in hot: 0.5% for the month as opposed to the (still hot) 0.4% expected. Core CPI higher for the month than the three months than the six months.
Even core w/ new private rent indices running well above 2%. pic.twitter.com/MdomRwBQI1
— Jason Furman (@jasonfurman) March 14, 2023
“Supercore” inflation, which also excludes housing costs, is considered a strong indicator of the cost of services as opposed to goods, according to CNBC. Federal Reserve Chair Jerome Powell claimed that supercore inflation — which he dubbed “core services other than housing” — is the “most important [indicator] for understanding the future evolution of core inflation” in a November 2022 speech.
Supercore inflation has climbed for four months running on a month-over-month basis, and for two months straight on a 3-month basis, according to Furman. “The broad story remains the same: goods prices are flat but core services are rising strongly,” Furman said.
“The price of a basket of goods and services that includes food and energy would tell you where prices are today, but it would not be a very good predictor of where prices will be a few months from now,” William Luther, director of the Sound Money Project at the American Institute for Economic Research, told the DCNF in a statement. “Similarly, since the estimated price of housing services reflects months-old rental contracts, it tends to lag the actual-but-unobservable price of housing services today—making it a better predictor of last month’s price of housing than next month’s.”
Overall inflation, including the goods excluded in core and supercore measures, is down substantially from its peak of 9.1% in June 2022, having fallen to 6% in February 2023, but remains nearly triple the Federal Reserve’s target rate of 2%.
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