Supply Chain Problems Continue As Inflation Jumps In February – Analysis

Overall, the Consumer Price Index is up 0.8 percent in February, 7.9 percent year-over-year. The core is up 0.5 percent, 6.4 percent year-over-year. February data indicate supply chain issues are still huge. The war, and the resulting rise in energy and other commodity prices, are creating huge uncertainty going forward. Disruptions also will complicate supply chain problems. 

New vehicle prices rose again, even as used car prices fell slightly. Household items still are rising rapidly as well. Used car prices drop 0.2 percent but are still up more than 40 percent year-over-year. This added 1.6 percentage points to year-over-year inflation.

Beef prices rose 0.8 percent (after falling 2.3 percent in the prior two months), and are up 23.9 percent since the pandemic began. The rise is not explained by increased demand since we are back to pre-pandemic levels of consumption.

Television prices fell 0.9 percent in February. Sharp drops in prices since August have reversed almost all the price rises in spring and summer. The year-over-year prices were up 0.4 percent.

Apparel prices rose another 0.7 percent in February, 6.6 percent year-over-year. This is clearly a supply chain story, almost all apparel is imported and import prices are up less than 2.0 percent.

Rent proper is up 0.6 percent, 4.2 percent year-over-year. Owners equivalent rent is up 0.4 percent, 4.3 percent year-over-year. Rent proper often includes utilities, which are rising rapidly due to energy costs.

We continue to see a sharp divergence in rents, with increases in high cost areas relatively moderate, and rents in low cost areas very sharp. The year-over-year rent in NYC was up 1.2 percent, in DC 0.7 percent, and San Francisco 0.1 percent. Rent in Detroit was up 8.3 percent and Atlanta 8.5 percent.

The future direction of rents will be huge for overall inflation since they account for 30 percent of the index. Private indexes are showing market units have risen far more rapidly than the CPI, but end of the eviction moratorium will lead to more vacant units.

Medical care services rose just 0.1 percent, 2.4 percent year-over-year. This suggests that the 0.6 percent rise in January was an anomaly.

Appliances were up 0.7 percent in February, household furnishings and supplies were up 0.8 percent, up 7.3 percent and 10.3 percent year-over-year, respectively.

College tuition was up 0.2 percent in February, 2.0 percent year-over-year.

The car insurance index rose 1.2 percent in February (4.3 percent year-over-year) adding 0.1 percentage point to year-over-year inflation. This is largely a pandemic catch up. The current price is just 1.3 percent above the pre-pandemic level.

Store bought food was up 1.4 percent in February, 8.6 percent year-over-year. Restaurant food was up just 0.4 percent in February, and 6.8 percent year-over-year. This indicates restaurants are finding ways to increase productivity, thus keeping prices down despite higher wages.