Why Did Economists Blow the CPI Forecast So Badly This Month?

by Mish Shedlock, Mish Talk:

Economists blew the CPI forecast badly underestimating inflation this month. Let’s investigate why, including my advance warning on the key component.

Bloomberg Economist Expectations

  • CPI M/M: 0.7% Expected vs 1.0% Reported
  • CPY Y/Y: 8.2% Expected vs New 40-Year High 8.6% Reported
  • CPI Excluding Food and Energy M/M: 0.5% Expected vs 0.6% Reported
  • CPI Excluding Food and Energy M/M: 5.9% Expected vs 6.0% Reported

It was a clean miss economists undershooting inflation in every estimate.

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Spotlight Shelter

The shelter index is a whopping 32.44 percent of the CPI. So despite the fact that it is only up 5.5% year-over-year, the jump contributed an outsized percent to overall year-over-year inflation.

I have been warning about this for a couple of months.

How Far Behind the Curve is the BLS and Fed on Rent Inflation?

National Rent data from ApartmentList, OER and Primary Residence from the BLS, chart by Mish

National Rent data from ApartmentList, OER and Primary Residence from the BLS, chart by Mish

On June 2, I asked How Far Behind the Curve is the BLS and Fed on Rent Inflation?

Those red and blue dashed lines were my projections on June 2. Owner’s Equivalent Rent (OER) and Rent of Primary Residence are severely lagging National Rent Prices.

OER is the mythical price one would pay to rent one’s own house from oneself, unfurnished, without utilities.

I commented “There will be upward pressure on rent in the CPI for the next three to six months.

CPI Percentage Weights 

CPI Percentage Weights from BLS, chart by Mish

CPI Percentage Weights from BLS, chart by Mish

Percentage Weights May 2022

  • OER: 23.78%
  • Rent of Primary Residence: 7.28%
  • Energy: 8.26%
  • Food at Home: 8.30%
  • Food Away from Home: 5.12

The numbers change slightly every month. Also, the shelter index is a bit higher than Rent plus OER.

CPI Month-Over-Month OER and Rent 

CPI data from BLS, chart by Mish

CPI data from BLS, chart by Mish

OER and Rent both jumped 0.6 percent month-over-month. Those are big jumps given their weight in the CPI.

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