You read in the press that persistently high inflation has finally peaked and should be going down soon. But the latest CPI numbers show it might not be entirely true. Here’s why.

Has Inflation Peaked? Here's What You Need to Know to Understand Inflation

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You’ve probably seen last week’s big headline: 

U.S. inflation has finally slowed for the first time in 9 months

This has led some news outlets to say that inflation finally reached its peak in March and is now cooling off.

Will we now be paying less for food, gas, housing etc.?

. At least that’s not what the latest CPI number shows.

What last week’s CPI numbers really tell us about inflation.

 (CPI) is the most widely used measure of inflation. It tracks the change in the prices of services and goods we buy everyday.

The CPI is the most widely used measure of inflation which tracks the change in the prices of commonly purchased goods and services as shown in the picture of a cartoon woman explaining the inflation graph with a bag of groceries standing on the side

To be more accurate, the CPI groups those goods and services together in categories or 

one basket for clothing, one for housing, and so on.

Nevertheless, not all of these categories are equally important when calculating the CPI. 

They are ranked according to what statisticians believed were their relative importance in the household in a certain time period, with some having more weight than others.

Here’s how different CPI categories are ranked today (here divided into 7 main groups):

A table listing different Consumer Price Index categories, including the most important ones like food, energy and housing.

 are the highest weighted categories within the CPI calculation.

This means that these categories will have the biggest impact on how inflation rate is measured. Roughly speaking, if one or several of these categories go down, the overall CPI will be lower.

For example, if housing prices start decreasing, the CPI may indicate inflation is going down, even though food and commodities prices might be going up at the same time.

That’s why, if you hear that high inflation has slowed down, it does not necessarily mean that you will spend less money in your day-to-day life.

And CPI works more or less in the same way in Europe

Here is a breakdown of the consumer price index for the Euro area in March 2022:

Overall and breakdown of HICP (Harmonized Index of Consumer Prices) by components in March 2022, Euro area

In Europe as well, housing & energy (including gas prices), transport, and food are the three main categories composing the index.

What does April’s CPI tell us about inflation?

The short answer to this question is that inflation 

Even though April’s reading showed a slight decline from the 8.5% increase seen a month before, 

Because prices in the biggest CPI categories, including food and shelter, haven’t stopped rising: 

 as biggest airlines reported an increase in demand for travels going into the summer.

These numbers tell quite a different story than those you see in the press, right? 👀 

, inflation slowed in April, mostly due to a 2.7% drop in energy prices, which is a big component of the CPI.

, little has changed in most of the other categories, important for regular consumers: you will most likely continue spending more on essentials like food and rent. Well, unless you own a house and… don’t eat a lot. 🙂 

With prices going up everywhere you look, it doesn’t seem like inflation is actually 

And it’s not just us, here’s economist Dr Ryan Lemand’s take on the matter the day after the CPI numbers were released:

“In appearance, it looked like inflation has peaked, but in fact,

 yesterday's number was much worse than last month's when dissecting it

 […] Broad-based services inflation is picking up, and this is the sticky and damaging inflation”

Here’s what Kenny Polcari, Chief Market Strategist at SlateStone Wealth and Managing Partner of Kace Capital Advisors, has to say:

“Three most important pieces of the report continue to accelerate […] and with shelter 32.5% of the report – it is hard to believe that CPI is ‘peaking’ as they would like you to believe – but rather 

I would argue that we can expect inflation to remain persistent

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A Shift in Gold Demand Trends

Good thing central banks can't print gold. 😉

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