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Inflation & GDP in 2023

Inflation & GDP in 2023

November 01, 2023

With the latest GDP and CPI Reports, eyes are on the economy, inflation, and the possibility of a recession. 

For September, the CPI Price Index showed a Year-over-Year (YoY) increase of 3.79%.  While still higher than the Fed would like to see, it is down from the 4.99% number we got six months ago in March.  Diving a little bit deeper into the numbers may give us some better news.  Remember, Shelter makes up over 34% of the CPI index.  Removing Shelter (Rent of Primary Residence and Owner’s Equivalent Rent) from CPI, we got a YoY increase of 1.98%.  This is the fourth month in a row of CPI Less Shelter being less than 2% YoY.  We continue to believe that housing, measured by CPI Shelter, has been the main driver of persistent inflation and September showed another month of CPI Shelter growing over 7% YoY.1

Core CPI, which is CPI excluding food and energy, showed a 4.18% increase YoY in September.  However, removing Shelter again from Core CPI, we saw a 1.93% increase YoY.  This further signals to us that housing costs are responsible for continually high headline CPI numbers.1

The Advance Estimate for Quarterly Real Gross Domestic Product (GDP) growth came in at a 4.9% annual rate for the third quarter of 2023.  This was a welcome showing of growth and the highest growth rate reported since the end of 2021.

This, along with low unemployment and stubborn inflation headlines, could cause the Fed to hold rates higher for longer or possibly increase the Fed Funds Rate one more time.  However, if we had to guess, the Fed leadership will continue to talk and “signal” that rates could stay high longer to prevent any overreaction to them potentially cutting rates soon.  If history is any indicator, the Fed will flip at the drop of a hat, especially if that hat is the unemployment rate increasing, and cut interest rates.


1: U.S. Bureau of Labor Statistics, September 2023 CPI Economic Release, October 12, 2023

2: U.S. Bureau of Economic Analysis, Gross Domestic Product Third Quarter 2023 (Advance Estimate), October 26, 2023