Weekly Economic Trends and Indicators

The Headline:

On July 12, the Bureau of Labor Statistics reported that the consumer price index (CPI) rose 0.2% in June (seasonally adjusted). In May, the CPI increased by 0.4%. The last two months increases have both been lower than the average of December through April (0.3%). The seasonally unadjusted increase over the last 12 months was 3.0%, down from 4.0% last month. Core inflation (excluding food and energy) over the previous 12 months fell from 5.3% in May to 4.8% in June.

The Details:

In contrast to last month’s CPI report, energy prices rose modestly while the core component of inflation moderated significantly. Food prices rose 0.1% in June (up 5.7% in the last year). Energy prices rose 0.6% (down 16.7% in the last year). Of the categories in core inflation, most rose by 0.2% or less, which is very encouraging. Shelter saw the largest increase at 0.4%, but even this is a moderation compared to earlier in the year. This deceleration of housing price inflation is expected to continue as supply and demand forces in the housing market get back into balance. Interest rate increases are finally doing their job of decreasing demand. All of these positive signs are continuing to reassure the consumer that inflation may be coming under control. The New York Fed also reported this month that household inflation expectations for the next year declined from 4.1% to 3.8%, the lowest seen since April 2021.

The Context:

This is some of the most encouraging news on inflation this year and was hailed by Wall Street as the markets continued their recent rally. The strength of the overall economy probably still means one more rate hike next week, but the good inflation news may help the Fed find a reason to pause again after that. Next week’s GDP numbers will give us an indication of how much the broader economy is slowing due to past rate increases, and that will help guide the Fed over the next couple of meetings.

Next Week: Federal Reserve Meeting and 2nd Quarter GDP