Who Says 2% Should be the CPI Inflation Target?

Apr 17, 2024 | Macro Insights, No Bull Economics

March CPI Post Banner

The inflation surge hit its zenith in June of 2022, peaking at +8.9% y/y. Fast forward nearly two years and inflation has declined to +3.48% y/y during the latest March 2024 report. While this represents progress, the problem is that recent trends have been deteriorating, prompting investor concerns that the Fed is likely to postpone any interest rate cuts. Notably, it turns out that the stock market doesn’t need rate cuts to power ahead…  


  • How does the S&P 500 power to new highs during an election year without rate cuts in a so/so economy? We don’t know, ask the Fed…
  • In any case, one thing is clear, the cumulative impact of inflation over the last couple of years poses significant difficulties for the consumer (refer to CPI index below). To get back to pre-covid price levels we need deflation as opposed to the Fed’s +2% CPI inflation target.
  • We continue to maintain that the answer to lowering prices is not strangling economic demand with high-interest rates but by increasing supply as discussed in this analysis.

CPI for all Urban Consumers & SPX & FDTR Graph

Where Are the Inflationary Sticking Points?

  • According to the most recent CPI release (March 2024 data), the CPI-U is starting to inch up after moderating at the beginning of 2024 (refer to table below).
  • A +4.7% increase in other goods & services was attributed to service providers (accountants, lawyers, plumbers, etc.) increasing their pricing above their own input own cost inflation as they take advantage of the “inflation narrative” to increase profits.
  • A +4.65% increase in housing costs reflects a housing shortage as existing homeowners are unwilling to sell because of a reluctance to trade out of their low-interest mortgages into today’s high 6.8% rate – refer to the following analysis The Impact of Exorbitant Housing Costs.
  • A +4% increase in transportation costs was attributed to: skyrocketing new car prices; and, correspondingly, +22% growth in car insurance prices driven by ramping repair costs, a dwindling pool of automotive technicians, & semiconductor shortages. Once again, we see inflation driven by shortages!

CPI Chart

Are Companies Price Gouging?

  • As evident by the chart below, the CPI index (retail prices) has remained below both the PPI commodity index (wholesale prices) and the wage rate index. This reveals that U.S. companies have been absorbing at least part of their higher input costs (pressuring margins).
  • All the same, while U.S. companies have been largely conservative in terms of passing along price increases, many have cut costs by right-sizing their labor forces while also pursuing operational efficiencies.  

CPI & PPI & Compensation Post Graph

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