The December 13 CPI report (8:30 AM ET) for November 2022 should show a further inflation decline. That's the good news. The problem is that the one number reading will sit atop a mixed bag of movements. Therefore, putting together a coherent explanation will take thought and time. Nevertheless, the media and markets will charge out of the gate, riding presumptive simplicity.
There are two primary moving parts that make understanding the November report challenging...
First, price drops
Certain areas of the economy had unusually large price run-ups based on special circumstances. Some have now entered reversal periods, with declines moving trends back to “normal.”
The primary areas are:
- Energy, with its 8% weighting
- New cars, 4%
- Used cars, 4%
- Non-energy commodities, scattered throughout
- Shipping, also scattered about
There is a serious problem with those price reversals. Just as the abnormal price gains skewed past inflation calculations higher (remember 9%?), the compensating price declines will push them "abnormally" lower.
As an example, consider the difference between these two movements:
- A 6% price rise declining to a 4% rise
- A 10% price rise followed by a -5% drop
Source : The Coming CPI Inflation Report Will Be Sketchy - So, View Media And Market Reactions Skeptically