MBA Chart of the Week: CPI and Its Motor Fuel Component

Headline inflation, as measured by the Consumer Price Index, increased by 1.5 percent in September from a year ago.   

This is the CPI’s highest year over year percent increase since October 2014, when oil prices first began to plummet. In this week’s chart, we show the year over year change in motor fuel prices faced by consumers which is an important driver of the overall CPI.   

Wages have been growing at about 2.5 percent year over year. Eventually, this increase in wages will feed through into higher prices. For now, however, households are seeing wages increase on an inflation-adjusted basis for the first time in a while, which bodes well for housing markets.  

The Fed’s preferred gauge of inflation is the personal consumption expenditure deflator, which typically runs about half a percent behind the better-known CPI. We expect the PCE deflator will hit 2 percent in 2017.  

Fed Chair Janet Yellen in a speech last week indicated it might make sense to allow the economy to run a little hot, increasing inflation above the Fed’s 2 percent target in an attempt to further strengthen the job market. Bond investors typically don’t look favorably on such talk as unexpected inflation will erode bond yields, and we have seen yields on longer term bonds inching up since her speech.  

To view the Chart of the Week, click https://www.mba.org/news-research-and-resources/forecasts-data-and-reports/forecasts-and-commentary/chart-of-the-week.  

(Michael Fratantoni is chief economist and senior vice president of research and economics with the Mortgage Bankers Association. He can be reached at mfratantoni@mba.org. Lynn Fisher is vice president of research and economics with MBA; she can be reached at lfisher@mba.org. Joel Kan associate vice president of economic forecasting with MBA; he can be reached at jkan@mba.org).