July’s inflation data has brought a notable shift, hinting at a reduction in price pressures and offering respite to the Federal Reserve’s ongoing battle against inflation. While the headline Consumer Price Index (CPI) report unveiled a 3.2% increase, the nuances beneath the surface paint a positive picture for the central bank’s efforts.
Lydia Boussour, Senior Economist at EY-Parthenon, highlighted the encouraging nature of the July CPI report, asserting that it provides more convincing evidence of declining inflation pressures.
Although fuel price surges contributed to the uptick in headline inflation for July, a closer examination of “core” inflation, the Fed’s preferred measure that excludes volatile food and energy components, reveals a slower growth rate not seen since October 2021.
July saw core prices rise by 4.7% year over year, marking a decrease from June’s 4.8% and a substantial drop from July 2022’s 5.9%.
Furthermore, the month-on-month increase in core CPI stood at 0.2% for the second consecutive month, a notable occurrence not seen since February 2021. This stability prompted a positive market response, resulting in a rise in stock values.
Bank of America’s US economist, Stephen Juneau, described the report as encouraging, emphasizing the consistent downward trend in sequential core inflation. He suggested the possibility of another soft inflation print for August due to declining wholesale used car prices.
While acknowledging potential short-term fluctuations in inflation, Juneau remained confident that the current disinflationary trend is not a mere temporary shift.
Another key metric tracked by the Fed, core services prices excluding housing costs, demonstrated a month-over-month increase of 0.2%. This growth was notably lower than the 0.4% to 0.5% upsurge observed earlier in the year, as highlighted by Boussour.
Boussour predicts that the Fed will view this report as another step towards a disinflationary trajectory.
However, given that inflation remains distant from its 2% target, she anticipates that the Federal Open Market Committee (FOMC) will maintain its hawkish stance and remain open to potential rate hikes should the data support such action.
The easing of core inflation coincides with recent economic indicators revealing a cooling labor market. July’s job addition data depicted a mere 187,000 new jobs, the lowest since December 2020.
Additionally, the Department of Labor’s report from the first week of August indicated the highest weekly jobless claims in a month.
As a result of these combined insights, investor confidence in the Federal Reserve’s decision to abstain from interest rate hikes during its upcoming September meeting has grown. The CME FedWatch Tool currently suggests a 90% probability that the benchmark interest rate will be maintained within the 5.25%-5.50% range.
Prior to the recent jobs report and CPI release, the market had priced in an 82% chance of a Fed pause for September. Notably, this sentiment has shifted from just a 72% likelihood in early July.
Jefferies US economist Thomas Simons noted that the Federal Reserve seems inclined to halt rate hikes for the current cycle. The central bank remains committed to addressing inflation and appears to view additional time with policy in restrictive territory as crucial for achieving its inflation target.
(Original Article Source: Yahoo Finance)
This Is What People Say:
| Comment |
|---|
| Many people fail to grasp that we’re paying over 3% more on top of last year’s nearly 9% inflation. Prices aren’t coming down. Expect the August CPI and other indexes to skyrocket due to surging fuel prices. |
| History has shown that prices never decrease after inflation. I’ve never seen it in my 68 years. Hoping for that is setting oneself up for disappointment. |
| The focus on inflation being positive is irrelevant when the costs of essentials like rent, healthcare, and childcare have surged. For instance, a box of cereal for mothers now costs around $7.50 – $8.00. |
| Inflation has driven food prices up by 50% and single-family home prices by 80% – 150%. Rent is high, leading to more homelessness. Home prices are skyrocketing. |
| It’s essential to keep spreading the truth, as many are misled by media spin and misinformation from the current administration. |
| The distinction between inflation coming down and prices coming down is crucial. Inflation rate is the focus when discussing inflation, and deflation (lower prices) would be undesirable. |
| The 3% figure for inflation is unrealistic. |
| The goal is to curb inflation to 2%, not to lower prices. |
| The recent increase to 3.2% in annual inflation is hardly progress in tackling the issue. Positive aspects are difficult to identify. |
| The data suggests easing price pressures, but considering the overall debt growth paints a different picture. |
| The exclusion of food and energy costs distorts the numbers. Everyday items like a 2-liter soda have nearly doubled in price in 8 months. |
| Focusing on core indicators doesn’t reflect the reality of everyday expenses such as groceries, gas, and housing costs influenced by high interest rates. |
| The headline’s optimism contradicts the fact that inflation reaccelerated in July for the first time in 13 months. |
| Fixing energy problems is vital for stabilizing inflation. Recent price increases in oil and natural gas will impact inflation in the future. |
| Success in controlling inflation should be measured by minimal fractional increases or no increase in indicators, not premature celebrations. |
| The current scenario is far from wishful thinking; recent oil price hikes indicate challenges in reducing inflation to even 2.5%. |
| The rising cost of essentials like food, gas, and insurance, coupled with higher debt expenses, may lead to a breaking point for many. |
| Energy costs, particularly crude oil and natural gas, play a significant role in driving inflation. |
| If all purchases were considered, inflation would be closer to 30%. Many items have doubled in price in the past year, including restaurant meals. |
| Keeping inflation below 2% is essential for the Fed’s credibility. It’s a straightforward but well-compensated responsibility. |
| The cost of living is spiraling out of control, making it difficult for ordinary people to afford necessities like housing, gas, and groceries. |
| The price of everyday items, like a 2 1/2 lb pot roast, is reaching astonishing levels. |
| The focus should be on responsible inflation control, rather than manipulating data to fit a narrative. |
