The Week in Review: July 18, 2022
Peak Inflation? So Far, It’s Been Just a Mirage
There has been no shortage of talk about inflation peaking this year. Unfortunately, it has only been talk. Instead, retail inflation continues to surge, according to the latest data.
Led by a 7.5% rise in energy prices, the Consumer Price Index (CPI) jumped 1.3% in June, according to the U.S. Bureau of Labor Statistics (BLS).
If we exclude the 1.4% rise in the CPI that occurred right after Hurricane Katrina’s landfall in 2005, June’s increase was the largest since June 1982.
There was very little that was favorable in the report. Services continued to rise, rents were higher, and consumer goods, which had slowed earlier in the year, have accelerated over the past two months.
However, if we look under the hood, there are some cautiously hopeful signs that inflation might cool a bit later in the year.
The average price of regular gasoline is down nearly 50 cents per gallon in about one month, according to GasBuddy.com (through July 15). That should aid July’s CPI. Various commodities have dropped off their respective highs (CNBC, various sources).
Outside energy, the Producer Price Index, which measures wholesale prices, is showing signs of moderating (U.S. BLS), and the strong dollar has pushed import prices, excluding energy, down for two-straight months, per the U.S. BLS. That hasn’t happened since 2019.
Yet, let’s restate the obvious. June’s CPI was a huge disappointment. The broad-based measure of inflation is up 9.1% over the last year, which is the biggest annual increase since 1981.
And the outsized jump raises the possibility that the Federal Reserve could hike the fed funds rate by as much as 1.0% at its late July meeting. But that’s not a done deal.
It’s still early, and one measure of sentiment from the CME Group still favors a 75 basis point (bp, 1 bp = 0.01%) increase in July and another 75 bp increase in September.
If the Fed follows through with that scenario, it would be the biggest series of rate hikes (including June’s 75 bp) since the early 1980s, per Federal Reserve data.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
Foreign shipments worth less than $800 are not counted in the U.S. trade deficit. One economist estimates that those shipments, largely from China, now add up to $112 billion of goods a year. -The Wall Street Journal, June 17, 2022
“There is considerable overlap between the intelligence of the smartest bears and the dumbest tourists.”- Yosemite National Park Ranger
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