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Pandemic-Related CPI Component Volatility Mostly Fading


Volatility in pandemic-related categories subsided significantly in the second half of 2023, reducing their importance in forecasting the month-to-month readings. The 6-month average standard deviations of M/M % changes are at multiyear lows for new car prices (which have risen between 0.0-0.1% for the past 4 months), car/truck rental, and almost so for used vehicles.

  • Some travel categories stand out: volatility remains elevated for airfares after summer gyrations, however, while lodging price volatility has picked up in recent months.
  • In December, airfares rose by a 4-month high 1.0% M/M (vs -0.4% prior), lodging by a 3-month high 0.4% (-0.9% prior), and vehicle rental deflated less (-0.7%, -2.2% prior) while new cars (0.0%, 0.0% prior) and used car prices (0.5%, 1.6% prior) were flat/lower.
  • As it stands, pandemic category price levels are settling both higher and lower vs overall core prices, which are up 17% since Feb-20: Airfares are 6% below pre-pandemic levels, with lodging prices also undershooting overall core CPI; new cars and vehicle rental prices are now only slightly above the development in core CPI.
  • Used cars stand out at 38% above pre-pandemic levels and gaining again in recent months, but forward-looking wholesale price measures suggest that softening is likely in the pipeline.

Source: BLS, MNI Calculations

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