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Shelter impact on CPI

The US inflation report for December 2022 will be published tomorrow, and the market expects a 6.5% cpi yoy growth vs 7.1% for November. Part of that decrease is due to the shelter component, of inflation, which seems to be going down aggressively. A proxy for the shelter component is shown below where three private independent indicators of rent prices show a sharp decline since mid ‘22. That should be good for markets in the sense that inflation is going down, but the question is if demand has weakened so much that the US economy may enter into a recession and economic stimuli will be needed to reactivate demand, starting a new inflation cycle.

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