From @TheStalwart: An interesting perspective on yesterday’s US inflation figures:
“The numbers were somewhat underwhelming, indicating that the time when everyone was anxiously awaiting each inflation report may be fading. I believe the most fitting description…”— Mohamed A. El-Erian (@elerianm) August 15, 2024
Recent figures reveal a decline in the consumer price index to a 2.9 percent yearly increase in July, down from the 3 percent noted in June. This is the first instance since March 2021 that inflation has dipped below 3 percent. Price increases were greater than estimated in July.
The @WSJ discusses predictions for the US CPI inflation data set to be released tomorrow morning. #economy #inflation #markets #EconTwitter
— Mohamed A. El-Erian (@elerianm) August 13, 2024
Per the latest CPI report from the Bureau of Labor Statistics, consumer prices registered a 2.9% rise over the 12 months leading up to July. Monthly increases were 0.2%, succeeding a 0.1% drop from the prior month. Economists anticipated a 0.2% monthly rise and an annual increase of 3%, according to FactSet consensus estimates.
Both headline and core CPI climbed by 0.2% in July, aligning with market predictions. Year-over-year, the CPI rose by 2.9% (headline) and 3.2% (core), marking the lowest yearly rates since March and April 2021.
— Council of Economic Advisers (@WhiteHouseCEA) August 14, 2024
“Breaking the 3% threshold is a significant psychological milestone,” stated Sung Won Sohn, a finance and economics professor at Loyola Marymount University and chief economist at SS Economics. “It indicates that not only is inflation trending downward, but disinflation appears to be on course.”
When disregarding the more volatile sectors of food and energy, core CPI recorded a 0.2% increase from June and saw its annual growth moderate to 3.2% from 3.3%. Core CPI inflation currently tracks at its slowest rate since April 2021.
The expense of homeownership and rentals rose by 0.4%, with the shelter index making up nearly 90% of the monthly rise. Housing, which represents more than a third of the overall CPI, has been the primary challenge to reducing inflation. Nevertheless, analysts expect this barrier to lessen soon as measurements for housing-related expenses start to mirror the gradual, if not flat, rent increases evident in recent months.
The surge in housing costs during the pandemic resulted from increased demand for remote work, leading to strains on an already limited inventory. The Federal Reserve’s aggressive approach to interest rate hikes further complicated matters, increasing borrowing costs for renters, buyers, and constructors. Brian Bethune, an economics professor at Boston College, cautioned that a persistent housing shortfall may worsen if circumstances do not change.
Inflation trends towards recent lows
Annually, the shelter index rose by 5.1% through July, down from a high of 8.2% in March 2023, according to BLS statistics. “Looking ahead, it’s clear that the inflation scenario is set to keep improving,” Sohn remarked.
Excluding shelter, the CPI exhibited a 1.7% rise over the 12 months ending in July. Energy costs, particularly for gasoline, remained stable in July, while food prices experienced slight increases, with grocery prices rising by 0.1% for the month and dining prices increasing by 0.2%. Annually, prices for groceries and dining have increased by 1.1% and 4.1%, respectively.
The goods segment continued to experience disinflation and even outright deflation in July, while services edged up by 0.3%. The indexes for used vehicles, healthcare, airline fares, and clothing saw declines compared to June.
The report released on Wednesday builds upon a solid performance in June, which effectively reassured the Federal Reserve and markets of a moderating inflation trend. “When examining the reported monthly increases—0.2% overall, 0.2% in the core—it’s regarded as an ideal outcome,” noted Boston College’s Bethune. “Yet, delving deeper, it gets even more promising.”
The central bank has expressed the necessity for continued progress in dampening inflation before easing monetary policies.
Nonetheless, a jobs report for July that fell short of expectations, revealing a rise in unemployment to 4.3%, has escalated recession concerns. Christopher Rupkey, chief economist for FwdBonds LLC, mentioned that although inflation is not completely resolved, declining commodity prices are moderating inflation rates in some service sectors, primarily because of rising housing costs. While the CPI remains the most commonly used measure of inflation, the Federal Reserve’s preferred metric for targeting its 2% goal is the Personal Consumption Expenditures (PCE) price index.
Robert Triest, an economics professor at Northeastern University, suggested that the forthcoming PCE report could present an even more favorable outlook on inflation. Jared Bernstein, chair of the White House Council of Economic Advisers, praised the new CPI figures but reiterated that “no premature celebrations” should occur, as many families continue to grapple with steep costs.
