The following chart provides a breakdown of consumer spending by category for 2019. Spending patterns changed significantly during the pandemic due to the lack of accessibility to many types of services, but this depiction is probably fairly representative of our post-pandemic behavior.
(This chart was provided by Statistica)
Combining these weightings with specific inflation rates for each underlying category, the sources of the overall inflation rate of 8.5% for the past year become apparent.
Twelve month inflation rate:
New Cars 12.6%
Used Cars 16.1%
The shelter component of the CPI rose a more modest 5.5% over the past twelve months. However, the Bureau of Labor Statistics uses two measures of increases in housing costs: rents and an arcane metric known as “owner implied rent.” Both of them tend to lag increases in home prices by about eighteen months. Inasmuch as home prices are up 19.8% year-over- year, we can expect continued pressure on the large housing component even as inflation in other categories hopefully subsides. Several pundits have prematurely opined that inflation was topping out only to see continued upside surprises. So, while I am hopeful that the Federal Reserve can achieve a “soft landing,” I won’t be so bold as to call the peak in inflation.