Sun Changzhong (Research fellow, Global Private Equity Research Institute, Tsinghua University)
May 15thHiddentigercrouchingghostThe U.S. Department of Labor released CPI data for April.HiddentigercrouchingghostCPI in the United States increased by 3% in April compared with the same month last year.Hiddentigercrouchingghost.4%, unchanged from expectations, slightly lower than 3% last month.Hiddentigercrouchingghost.5%, 0.3% month-on-month growth, lower than expected and 0.4%; excluding food and energy, core CPI increased 3.6% year-on-year, unchanged, lower than the previous value of 3.8%, month-on-month growth of 0.3%, unchanged, lower than the previous value of 0.4%. It is worth noting that core CPI growth in April was the lowest since April 2021, the first decline in month-on-month growth in six months.
Although the CPI data is not the basis of the Fed's decision-making, it also has a certain reference value, and it was released earlier and attracted wide attention from all parties. The April CPI data confirmed the author's previous view: the stubborn inflation data that have been higher than expected for three months in a row this year is indeed a bit long and seems to be persistent, but there are still considerable seasonal and temporary factors. Since April, although it is inevitable that there will be twists and turns during this period, on the whole, it should resume the downward trend.
So far this year, the main contribution of US inflation stubbornness has been three major parts: oil prices, rents and services. The cooling of inflation in April and the next step of the decline are also mainly from these three parts.
In terms of oil prices, the spot price of Brent crude fluctuated after peaking at $93.6 a barrel on April 12, falling to $80.6 a barrel as of May 14. West Texas Intermediate crude (WTI) used in the United States has fallen from $86 a barrel in mid-April to about $78 a barrel at present. Given the slight lag in price transmission, the CPI energy sector is expected to cool down in May. Next, as the cooling of the US economy slows demand and the situation in the Middle East tends to ease, oil prices are expected to fall steadily.
The cost of living accounts for as much as 1/3 of the CPI index. As the rents of most tenants only change once a year, the statistical performance of new tenancy rents lags behind, and the lag time is longer than expected. In April, rent and landlord equivalent rent remained at 0.4% quarter-on-quarter, but unadjusted month-on-month growth weakened to 0.3%. Rent growth moderated month-on-month, raising hopes for a further decline in inflation.
Last year, 93000 new rental single-family homes in the United States were completed, a record; this year, another 99000 new rental homes are under construction. The increase in supply will help to control the rise in rents or even promote the decline. On the downside, willingness to buy houses remains sluggish under the influence of high interest rates and households have a higher demand for rent renewal, which may prolong the statistical lag of the decline in new lease rents; the demand for new apartments is increasing significantly as a result of increased immigration and income growth. this could lead to a revival of the single-family housing market. According to real estate company Camden Property Trust, the proportion of tenants moving out of its apartments has fallen to 9%, the lowest level in 30 years. In general, the removal rate is 15% to 18%. But at the same time, it should also be noted that the ability of immigrants to pay is usually limited, and the growth of residents' income is also cooling. Many economists expect housing inflation to continue to decline, falling below 4 per cent by the end of the year, close to historical normal levels.
To observe service inflation, we must first observe the employment and income situation. This slowdown has been shown in the previous two months' data, and even more pronounced in April. According to data released by the US Labor Department on May 3rd, non-farm payrolls rose by 175000 in April, much lower than the expected 240000, the biggest difference since December 2021, the unemployment rate rose to 3.9%, and the average hourly wage growth rate declined for two consecutive months compared with the same period last year. The month-on-month growth rate was also lower than expected and the average weekly working hours decreased slightly. A recent study by the San Francisco Fed shows that excess savings for U. S. residents began to decline in March. According to April retail sales data released by the US Commerce Department, retail sales grew zero in April from a month earlier, well below market expectations of 0.4 per cent, and the growth figure for March was revised down to 0.6 per cent from 0.7 per cent. These data show that the US job market is cooling, income growth is slowing, and inflationary pressures are easing.
To observe US inflation and Fed policy, we still need to focus on and analyze PCE data, which is the basis for Fed decision-making and is usually lower than CPI data. An analysis of the March PCE data showed that the higher-than-expected figures in the first quarter were mainly due to an upward revision of the January data. This shows that in the first quarter, the two months after January tend to decline, the stubbornness of inflation is not so prominent, but also contains the trend signal of the overall decline in inflation, it is expected that the next step of PCE data may be more obvious.
