CPI Hits Near 40-Year High as Underlying Price Pressures Continue to Build

Key Takeaways:

• The Consumer Price Index (CPI) increased 0.8 percent in November, following a 0.9 percent increase in October, according to the Bureau of Labor Statistics (BLS). On an annual basis, prices rose 6.8 percent, the fastest rate since 1982. Core CPI increased 0.5 percent over the month and 4.9 percent over the year, the fastest rate since 1991. Energy prices increased another 3.5 percent over the month, driven mostly by a 6.1 percent increase in gasoline. New vehicle prices were up 1.1 percent, while used car and truck prices increased 2.5 percent for the second straight month. Airline fares jumped 4.7 percent after four consecutive months of decline. Food away from home rose 5.8 percent on an annual basis. Owners’ equivalent rent (OER) increased 0.4 percent for the third consecutive month and was up 3.5 percent annually, an acceleration of four-tenths from October.
• The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings increased by 431,000 in October to 11.0 million, rebounding from two consecutive months of decline, according to the Bureau of Labor Statistics. New openings were generally broad-based, with leisure and hospitality, manufacturing, and educational services adding 251,000, 61,000, and 59,000 openings, respectively. The number of hires remained essentially the same at 6.5 million. Total quits decreased by 205,000 to 4.2 million, a decline from the record set in September but still almost 22 percent higher than what was seen in October 2019. 
• Consumer (non-mortgage) credit outstanding increased $16.9 billion in October, according to the Federal Reserve Board. Revolving credit (largely credit cards) rose around $6.6 billion to the highest level since April 2020. Non-revolving credit (largely auto and student loans) increased by approximately $10.3 billion.
• U.S. household and nonprofit organization net worth, the value of assets minus liabilities, increased by $2.4 trillion in the third quarter, according to the Federal Reserve. Owners’ equity in real estate rose by more than $1 trillion for the third consecutive quarter and as a percentage of household real estate value moved up five-tenths to 68.8 percent, the highest percent since 1988. Single-family mortgage debt outstanding rose $246 billion to $12.3 trillion (nominal) in the third quarter of 2021, up 7.8 percent from April 2020.
• The real goods U.S. trade deficit narrowed by $13.5 billion to $97.6 billion in October, the smallest deficit since December 2020, according to the Census Bureau. Real imports declined 0.1 percent, while real exports jumped 9.5 percent to the highest level on record, partially reflecting an increase in oil exports as the effects of Hurricane Ida wore off.

Forecast Impact:

Another broad-based and red-hot inflation report was largely in line with our revised expectations after October’s CPI reading. We still believe some components of the CPI are rising due to temporary factors, such as high prices for natural gas, used autos, and many other durable goods affected by supply chain issues. These are likely to eventually pull back and drag on the headline number. However, the report as a whole is indicative of widespread price increases that we believe are likely to last well into next year and beyond. For example, shelter costs, which represents about 32 percent of the CPI basket, increased 3.8 percent over the year and are likely to accelerate further as recent home price growth is accounted for.

Additionally, the JOLTS, which showed job openings bouncing back to near-record highs and a persistently high quits rate, is indicative of the growing bargaining power workers have in a tight labor market. This is supportive of continued strong wage growth, which will help power consumer spending in the near term but will also continue to drive underlying inflationary pressures, especially if higher wages do not incentivize meaningfully more people to enter the workforce. Overall, this and the CPI report are supportive of our forecast for sustained price growth well above the Fed’s 2 percent target at least through 2023.

The increase in consumer credit is generally in line with robust retail sales and personal consumption figures released earlier, which have already led to an upgrade to our near-term consumption forecast. Combined with wage growth, record high household wealth, especially growing homeowners’ equity due to robust house price growth, is likely to also support consumer spending. However, on the margins, it may also be keeping some workers on the sidelines, including via earlier retirements. Together, this adds to the laundry list of inflationary pressures.

Nathaniel Drake and Rebekah Gutierrez
Economic and Strategic Research Group
December 10, 2021

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.