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Written by Cyndie Martini
on February 22, 2022

Thursday's (Feb 10th) inflation print rose at 0.6% month-over-month. The expectation was for a 0.5% print. The previous print was also 0.6%. Year-over-year, this puts inflation at another record high (7.5%). What does this mean for the consumer?

The consumers' balance sheets and spending are both strong. Even though stimulus is long gone, balance sheets remain in good shape due to increasing wages, jobs growth, and the availability of jobs. While inflation is running higher than wage growth, it isn't by much, putting consumer buying power near break-even after adjusting for inflation.

Used and new cars were second only to shelter in recent CPI prints. Used cars and trucks (1.47%) and new cars (0.02%) moderated during January. All else equal, moderating autos should have resulted in a lower CPI print. However, inflation is broadening out, so other areas are picking up the slack left by autos.

Core commodities rose by 1.0%, while a broad range of household goods rose sharply. Specifically, household furnishings and supplies were up 1.6% in January after rising 1.2% in December. The end result is that there has been more inflation in the last two months than in a typical year.

Turning to inflation's impact on the services sector, we mentioned shelter had been the largest component of CPI. It was a big contributor to this recent print for primary residence rents and owner equivalent rents. They rose 6.7% and 5.2% seasonally-adjusted annual rate (SAAR), respectively. Airlines rose 2.3%. Hotels and motels fell by 4.2% month-over-month.

As economies continue to open up (i.e., reduce/eliminate COVID restrictions), the services sector will be the beneficiary, including hotels and motels. Consumer spending had to concentrate on goods during the pandemic since the services industry was largely shut down. This was a big component of supply chain bottlenecks. Now the tide is turning in favor of services.

 

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