US Inflation: Surprisingly quiet, not universally good though

US inflation is still pretty contained. There are lots of areas of concern, but the overall numbers look good given the environment.

Some really large negatives are dragging inflation down, particularly in travel-related sectors: air fares, hotels, and other recreation. Add rampant deflation in apparel and the overall picture looks reasonable.

Then there are lots areas of concern. Food services, energy services, household furnishings, medical goods and services.

Our view is that there is enough deflation from China to keep inflation from getting out of control, but the tariff risks are not to be ignored.

2010 – 2020 US Inflation

Central banks spent most of the 2010-2020 period cutting rates to stimulate inflation and failing.

Now, not only are we (probably) looking at higher levels of tariffs, but the US inflation environment is considerably different.

The US has an inflation target of 2%. For the decade before the pandemic, it achieved this roughly from:

• 2% food inflation split between 1% food cost inflation and 3% inflation on packaged food and restaurants.
• 0% energy inflation
• 0% goods inflation
• 3% housing inflation
• 2.5% services inflation

Basically, anything that benefitted from more trade and globalisation (food, energy, goods) had 0-1% inflation. Anything related to services had 2.5-3% inflation.

Latest US Inflation: high level

Broadly we are looking at:

• 3-4% food inflation, similarly split between food cost inflation and packaged food/restaurants.
• Rampant deflation in energy commodities, rampant inflation in energy services
• 0% goods inflation over 12 months, but 1.7% annualised over the last 3 months
• 3-4% housing inflation, continuing to fall
• 3% services inflation, mostly higher in recent months except for a crash in travel-related prices

Latest US Inflation: detailed