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CPI Preview: Watch For A Jump In Non-Transitory OER

CPI Preview: Watch For A Jump In Non-Transitory OER

While goods prices are hogging the spotlight at the moment, rental inflation is a far…

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This article was originally published by Zero Hedge
CPI Preview: Watch For A Jump In Non-Transitory OER

While goods prices are hogging the spotlight at the moment, rental inflation is a far bigger and more important driver of the medium-term inflation outlook.

As we discussed in great detail recently (see "What Rental Hyperinflation Looks Like: "Soaring Prices. Competition. Desperation"), the buzz has been one of rising, sorry, exploding rents and as BofA observes today picking up on our earlier notes, a number of high-frequency rent trackers show the rental market bouncing back with a vengeance. As shown below, the Zillow Observed Rent index rose 1.9% mom NSA and 9.2% yoy in July, while ApartmentList rents were up 2.3% mom NSA and 12.5% yoy in August.

Press releases from subscription-based sources CoreLogic and YardiMatrix paint the same picture, with the CoreLogic Single Family Rent index up 7.5% yoy in June, YardiMatrix single family rents up 13.9% yoy in August and multifamily rents up 10.3% yoy.

Needless to say, these numbers are clearly far and away higher than what we are seeing in OER inflation. There are two important considerations when translating the high-frequency data to OER, which tends to have a much smoother and lagging trajectory.

  • First, the BLS collects rents on a 6-month rotating basis and converts the 6-month change into a monthly change.
  • Second, these high-frequency rent trackers reflect market rents, or rents that a new renter would pay, which are more volatile than the rents paid by existing renters (i.e. those who do not move).

That said, BofA believes - as do we - that the signal from the high frequency data is informative for the outlook and suggests OER can surpass the prior business cycle’s high of 3.6% yoy. In fact, OER could easily reach 4.5% yoy (or higher) next year, which would imply average monthly growth of 0.37%. This reinforces an issue that we have been flagging for a couple of months: while the debate around inflation seems to be focused on when and how quickly “transitory” factors will normalize, “persistent” inflation has steadily moved up to a historically elevated rate.

Meanwhile, despite the Delta disruption, the economy is expected to grow above trend for the next several quarters. Therefore underlying inflation - especially for sticky items like rent - will continue to rise, keeping the Fed on track to start hiking in 2023.

Rent aside, today's CPI report, which is expected to show a fourth month of U.S. inflation at 5% or more, will shape investor expectations about the likely timing of the Fed taper. In terms of what to expect, DB's economists think there’ll be a deceleration in the month-on-month figures for both headline CPI and core CPI, which should largely be a function of demand continuing to soften in Covid-affected sectors. They see the monthly readings at +0.4% for headline and +0.2% for core, both of which would be the slowest in six months; the YoY print is still expected to be 5.3% and 4.2% for headline and core respectively.

That said, US inflation has had a regular habit of surprising to the upside in recent months, and you have to go back all the way to November’s print to find the last time that month-on-month headline CPI came in beneath the median estimate on Bloomberg.

Base effects are unfavorable once again this month, which means the % yoy rate (NSA) would slow to 4.0% yoy from 4.3% previously. The two drivers of transitory inflation strength earlier this year, the goods shortages and reopening of the economy, have faded further this month. Within goods, used cars are likely to decline as wholesale used car prices began to turn lower in June, with the Manheim index down 4.2% from the peak through August. New car prices will be a positive offset but are also likely to cool after averaging a strong 1.8% mom over the prior 3 months. JDPower forecasts average transaction prices (ATP) of $41.4k, which reflects a 0.8% mom increase from their July forecast, while Truecar data point to relatively flat ATPs from month to month. On the upside, there could be some strength in apparel prices as tight inventories could lead to less discounting during the back to school shopping season.

Tyler Durden Tue, 09/14/2021 - 08:28


Between a rock and a hard place

What will the Fed do? European stocks are making decent gains on Thursday, while US futures look a little flat ahead of the open on Wall Street. US equities…

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What will the Fed do?

European stocks are making decent gains on Thursday, while US futures look a little flat ahead of the open on Wall Street.

US equities rallied as the session wore on yesterday and we’re seeing Europe playing a little catchup this morning. Overall, the mood remains a little downbeat in the markets, with investors torn between the “buy the dip” approach that has fared so well in the past and the growing list of economic and market risks that are increasingly evident.

We may see more of this over the coming months as countries get to grips with winter Covid surges, higher energy prices and higher inflation, among other things. Which makes the positions of central banks all the more uncomfortable, with many seemingly determined to persevere with paring back their pandemic stimulus measures.

Of course, if they are becoming more of the view that inflation is not as transitory as they previously believed, then they’re caught between a rock and a hard place and may be forced to act. But that will only pile on the pressure and disrupt the economic recoveries that many have enjoyed.

Next week we should learn a lot more about what the world’s most important central bank thinks of recent developments and how it perceives the risks posed by inflation. It may not be surprising therefore if equities err on the side of caution between now and then as an undesirable response could trigger a nasty reaction in the markets.

US data delivers gains for stocks, yields and USD as gold tumbles

Today’s data from the US has done little to clear things up, with both retail sales and the Philly Fed manufacturing index smashing expectations while jobless claims popped a little but only just exceeded forecasts. Retail sales have been volatile for a number of months but an August increase of 0.7% was the reverse of the decline that was expected.

Philly Fed has been trending lower since March and that trend was expected to continue but a surprise jump may be cause for optimism. While new orders and employment indicators softened, firms remain optimistic about the next 6 months as current general activity and shipments saw large increases.

US futures got a small lift on the back of the data while the dollar continued to rally as US yields drifted higher once more. Gold, which has been through a rough patch over the last 48 hours, didn’t fare well with the data and continued to trend lower on the day.

Bitcoin struggling at $48,000 once again

Bitcoin has steadied once more around $48,000 which remains an interesting technical level. A rotation off here back towards $44,000 could see correction pressure grow. I say this having talked about the prospect of a correction for weeks now and yet, bitcoin has shown remarkable resilience.

It obviously hasn’t burst higher in that time either but it’s certainly dragging its feet. With that in mind, there isn’t much to add at this point. A significant break below $44,000 could make things interesting, while a move above $48,000 will put the focus back on $50,000 and may even trigger a shift in momentum that has been absent in previous rallies.

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Precious Metals

Oil pares gains, gold plummets ahead of Fed

Oil sees profit taking at summer highs Oil is pulling back a little on Thursday after enjoying another strong rally in recent days. Hurricanes hitting…

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Oil sees profit taking at summer highs

Oil is pulling back a little on Thursday after enjoying another strong rally in recent days. Hurricanes hitting the Gulf Coast in recent weeks have disrupted production in the region which has given a boost to prices. And with two more months of Hurricane season remaining, more disruption could follow.

Inventory data from EIA gave prices another lift on Wednesday, with WTI and Brent also rallying ahead of the release after API also reported a large drawdown a day earlier. With prices now back around summer highs, we are seeing some profit taking kicking in but the rally continues to look well supported.

WTI fell a little short of its summer highs around $75, stumbling around $73, while Brent saw resistance around $76. A break through these levels could see the rally gather even more momentum. If we do see a small pullback, the first test of support could come around $70 in WTI, where it had previously seen resistance.

Tough times ahead for gold?

Gold has fallen out of favour and fast, with the yellow metal slipping more than 1.5% today and below a key support level. This comes only a couple of days after it broke back above $1,800 on the back of softer US inflation data but that celebration was short-lived and it’s suddenly looking rather vulnerable.

From a technical perspective, $1,780 marked the neckline of a head and shoulders that formed over the last month, peaking at $1,833. The next major test below could come around $1,750 but further downside could be on the cards.

The fact that this has come ahead of the Fed meeting doesn’t bode well for the yellow metal. Recent data has given the Fed room to be more patient with tapering but the commentary we had late last week from officials suggested many aren’t discouraged. Gold could feel the love once more should policymakers change course next Wednesday but it could be a long week for the yellow metal in the interim.

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OIl Firm But Gold Flashes Danger

Oil prices leap higher.   Oil prices staged an impressive rally overnight having spent the week ignoring the gloom sweeping other asset classes. Official…

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Oil prices leap higher.


Oil prices staged an impressive rally overnight having spent the week ignoring the gloom sweeping other asset classes. Official US Crude Inventories surprised by falling by a much higher than expected 6.40 million barrels. The slow return of production and refining post-Hurricane-Ida being the main culprit. The relentless rise in natural gas prices, now starting to cause nerves to fray in Europe, is also helping to elevate oil prices and is a situation that I believe will get much worse before it gets better.


Brent crude carved through $74.00 a barrel on its way to an impressive gain to $75.50 overnight, rising slightly to $75.60 in Asia. $74.00 now becomes a support/pivot point. China’s announcement that it is selling some of its strategic reserves to the domestic market has had zero impact on prices and dips to the $74.00 region should find keen buyers. Brent crude has resistance near by at $76.00 and if that gives way, Brent crude should target the $78.00 a barrel area.


WTI leapt 2.65% higher overnight, climbing to $72.60 a barrel, advancing to $72.70 in Asia. Any dips to $71.00 a barrel should be well supported, at least until we see concrete recovery progress from the Gulf of Mexico hub. A rise through the overnight high at $73.10 suggests a test of $74.00 a barrel, which could extend to $76.00 next week.


Gold flashes more danger signals.


Gold’s price action overnight flashed more warning signs to bullish investors as prices fell despite the US Dollar weakening and US yields remaining barely changed. Gold finished the overnight session down 0.60% to $1793.50 an ounce. Gold rally on Tuesday failed at the 200-day moving average (DMA), and the uninspiring price action overnight is a huge warning signal that gold is living on borrowed time at these levels, with the path of least resistance looking more like lower by the day.


Gold has resistance at $1808.50, the 200-DMA which caped gains so well this week, followed by the 100-DMA at $1816.50 and a formidable series of daily highs around $1834.00 an ounce. Support lies initially at $1790.00 followed by the more crucial $1780.00 an ounce zone. Failure there is likely to see gold fall rapidly to $1750.00 an ounce and potentially lower.

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