DEEP DIVE: Inflation - Beware of the Devil in the Details

Investors have been spooked by inflation since Halloween 2021 as the CPI soared to peak at 9.1% during June 2022. It was down to 3.7% during September of this year. Yet investors are still spooked, fearing that inflation will remain stuck above the Fed’s 2.0% target or will rebound as it did during the 1970s.

Consider the following:

(1/4) We’ve recently observed that the headline and core CPI inflation rates were both 2.0% in September excluding shelter. Of course, the Fed tends to give more weight to the PCED inflation rate. The headline and core inflation rates for this measure of consumer prices were 3.4% and 3.7% during September (Fig. 9 below).

Excluding rent, the headline and core PCED inflation rates were down to 2.8% and 3.0% in September (Fig. 10 below). Both are down sharply from their 2022 peaks of 7.4% and 5.9%.