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PriceStats® Analysis: Peak Inflation or Just a Pause?

A look at quarterly measures of inflation, based on prices of millions of items sold by online retailers, to help investors anticipate and evaluate the impact of inflation.

Q4 2022

US Inflation: Bad but Better

The trend of relentlessly rising prices finally broke in Q3. Our US PriceStats index peaked in mid-June and, after falling in July and August, didn’t regain that peak by the end of the quarter. Seasonally weak price formation in Q3 is not that unusual. But this marks the first time in more than two years that we have seen a pause in the roaring headline inflation trend. This tamer trend already appears to be affecting consumers’ inflation expectations, a key gauge for the Fed as to whether it is winning the battle to keep inflation anchored.

While this inflection point in the headline inflation index is encouraging, the details of the sector series beneath the headline are much less so. Our PriceStats series were still consistent with core inflation running comfortably above 5.5% (seasonally adjusted annualized rate) across the quarter. Trends in household equipment, a guide to core goods inflation, and the impact of housing market activity remain robust, and prices related to health care actually accelerated. The implication is that even as headline inflation improves, underlying inflation remains a challenge.

Source: PriceStats, State Street Global Markets, as of September 30, 2022.

European Inflation: Playing Catch-Up

Wild gyrations in natural gas prices caused by the anticipation and then actual disruption of Russian supply are creating a significant economic headache for most European countries. As disruptive as gas prices and their knock-on impact on energy prices are, however, underlying inflation in Europe is still accelerating. Interestingly, across the quarter, inflation as captured by PriceStats rose faster in Germany, Italy and the UK than it did in the US.

Official data show a similar catch-up feeding through to both market-based and consumer inflation expectations. We note that in the latest European Central Bank (ECB) consumer expectations survey, the median expectation for inflation three years ahead has risen to just above 3%. A similar survey by the New York Fed shows US consumer expectations have fallen sharply to just 3.2%. In short, the perceived inflation gap between the US and eurozone is shrinking fast. A similar trend is seen in market-based inflation expectations with medium-term (5-year, 5-year forward) inflation expectations falling in the US over the quarter but rising in the eurozone.

Eurozone Inflation and Market Expectations Move Closer Together

Eurozone Inflation and Market Expectations Move Closer Together

Emerging Market Inflation Finally Rolls Over

Inflation is showing further signs of normalization across emerging markets (EM), reverting to seasonal average levels in September for PriceStats headline, food and fuel indices. This was enough to produce sharp declines in the annual rates of both food and fuel inflation, and a more modest dip in aggregate headline inflation, where base effects were less extreme. Inflation is decelerating the fastest in Brazil and South Africa, with annual official rates poised to fall further.  

EM Inflation Decline Driven by Food and Fuel

EM Inflation Decline Driven by Food and Fuel

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