Will Inflation Continue To Rise? Important inflation news arrived on the scene yesterday! The US CPI of 7.5%.
What happened when the BLS updated the weights of the CPI index this year?
The simple and most practical example:
Furthermore, the weight of “food away from home” is materially down (a service).
The weight of “food at home” is materially up (a good).
100% as a result of the pandemic.
Goods prices are more flexible than service prices, why the pandemic surge in goods consumption (& the accordingly distressed supply chain) led to a spike in inflation
If restrictions are now more permanently being lifted (base-case), we should expect goods prices to drop, which should now matter MORE given that goods have been given a higher weight.
Lastly, the changes made by the BLS hence provide a net/net negative impact to inflation down the line (during H2-2022 already). First up in Q1, then SHARPLY down in Q2-Q4 – a trend that will be emphasized by new weights in the CPI index.
