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Inflation: Comparing to 1980, and Core CPI ex-Shelter

by Calculated Risk on 11/15/2022 03:47:00 PM

Earlier this year I wrote: Housing: Don’t Compare the Current Housing Boom to the Bubble and Bust. I argued the 1978 to 1982 period was a more similar period for housing.

One of the graphs I presented was of year-over-year inflation.

Click on graph for larger image.

This graph shows the year-over-year change in inflation since 1959.

The black arrows point to the pickup in 1979 and in 2021.

Also note that recessions usually follow spikes in inflation as the Fed raises rates.

Although not a perfect comparison, I think the 1978 to 1982 is better than comparing to the housing bubble period with all the loose lending.

The second graph shows the year-over-year change in Core CPI ex-Shelter (blue), and the one month change annualized (red).

The year-over-year change was at 5.9% in October, down from 6.7% in September. And the annualized one-month change was negative in October!

I think this is important since there is growing evidence that rents are falling (more than seasonally). This is likely due to the sharp slowdown in household formation (since household formation surged during the pandemic, partially related to work-from-home), and will likely continue with the record number of housing units under construction.

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