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2023Q3 Quarterly Inflation Outlook (single issue)


This is a single issue, of the August 2023 Quarterly Inflation Outlook.

The QIO is a 15-20 page quarterly discussion of current topics in inflation, including underlying dynamics, valuation, and related markets.

Executive Summary

  • We present a new cost-based rental inflation model that seems to tightly track primary rents. The implication of the model is that rents will continue to decelerate, but it will be challenging to see rent inflation below 3% y/y any time soon.
  • We examine March-2020-to-now cumulative price increases and compare to M/Q. Food and Transportation have overshot where they ‘should’ be from a macro (not micro) perspective. Housing and “Other” are about right. Apparel, Medical Care, Recreation, Education, and Communication have all inflated much less than the macro-level expectation. Of these, Medical Care looks like the most-likely candidate to be an upward influence going forward.
  • While the level of inflation is receding, the volatility of inflation hasn’t receded as much. A sine qua non for the end of the inflation cycle is that inflation volatility also returns to normal.
  • The Fed is likely done hiking (although we said that in the last QIO), and they should be now that rates are back in the vicinity of normal. There’s no strong evidence that rate hikes themselves affect inflation.
  • We nudge our forecasts for 2023 and 2024 median inflation lower. We are still higher than most other prognosticators. It is getting more challenging to forecast than it has been for a while, since the rebound of money velocity is further along.
  • Inflation markets are showing more respect for the idea of sticky inflation above target over the next few years, but long-term inflation is still priced cheaply in our opinion.

SKU: 2303
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