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CPI Prints Cool Driven by Energy and Shelter

InfraCap Insights:  CPI Prints Cool Driven by Energy and Shelter

New York - November 14, 2023 ~ CPI printed cool at .0% and .2% core, as we had anticipated. Shelter finally dropped to .3% for the month vs. .6% the prior month but remains very elevated at 6.7% y/y. CPI core continues to be misstated due to the BLS methodology that deliberately lags shelter by over year. CPI-R, our index that corrects for Shelter lag, is now approximately 2% vs. the BLS estimate at 4%.

Energy costs were also a critical factor as gasoline prices were down 5% for the month, but also drove airline fares down .9%. Drops in energy prices have a significant bleed through to core as all businesses use substantial energy with certain sectors such as airlines and food heavily dependent on energy prices with energy content close to 40% of total cost. We continue to expect inflation to decline rapidly as the recent 12% plunge in gasoline prices gets fully reflected in November CPI and also has bleed through effects to core.

In addition, shelter as reported is likely to continue to decelerate as housing prices peaked well over a year ago so those declines are finally being reflected.

We are also bullish on bonds as we believe lower reported inflation and the European recession will spark rate cuts in the first half of 2024 by the ECB, which will boost global liquidity and drive interest rates lower.

Lower rates are likely to drive higher stock prices. Our 2023 target for the S&P is 4,500 with risks to the upside due to the AI boom. We have a 5,000 target for 2024 based on 18.5x 2025 estimated S&P earnings of $270 and believe there is also greater upside risk to that target due to potential AI-driven overvaluation.


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