A shopping cart is seen at a supermarket as inflation affects consumer prices in Manhattan, New York City, US, June 10, 2022.
Andrew Kelly | Reuters
If inflation remains the biggest threat to US economic growth, July’s data will provide signs that at least some relief is in the pipeline.
Prices were flat for the month, as measured by the items the Bureau of Labor Statistics tracks for its Consumer Price Index. It marked the first time that the overall measure had not posted a month-over-month increase since May 2020, when the widely followed index showed a slight decline.
Just a month earlier, the CPI posted its fastest 12-month gain since November 1982, following a trend that helped send economic growth into contraction in the first half of the year, fueling talk of a recession.
But at least the short-term trend that indicates the rate of price growth is slowing, economic optimism is rising.
“The whole recession narrative needs to be shelved for now,” said Aneta Markowska, chief economist at Jefferies. “I think it’s going to shift to a stronger narrative for a long time, which is really supported against inflation.”
Markowska, whose forecast this year has been spot on, sees solid growth in the near term, with a 3% growth rate in the third quarter. of the Atlanta Federal Reserve GDPNow gaugewhich tracks economic data in real time, indicated a growth rate of 2.5% in Wednesday’s update, up 1.1 percentage points from the last one on Aug. 4.
However, Markowska also expects pressure to intensify in 2023, with a recession likely in the later part of the year.
In fact, there was a little bit for both arguments CPI report.
The biggest tampering in inflation came from lower electricity prices. Gasoline fell 7.7%, the biggest monthly decline since April 2020. Fuel oil prices fell by 11% as prices of energy-related products were lower by 7.6%.
Cost increases in transport services also came off the boil, with airline fares falling 7.8% to reverse a trend that saw ticket prices rise 27.7% last year.
But the report showed some other signs of easing inflation, with food costs particularly high. The food index, in fact, rose 1.1% in the month, and its 10.9% pace over the past 12 months was the highest since May 1979.
That’s been a cause for concern at places like City Harvest, which helps feed needy New Yorkers who have been hit particularly hard by price hikes that began last year.
“We’re seeing more kids coming into food pantries,” said Jilly Stephens, the organization’s CEO. “Food insecurity was rampant even before the pandemic hit. Now we’re seeing more people turning to food pantries because of rising prices.”
Stephens said the number of children seeking food aid has nearly doubled in the year since the Covid pandemic hit, and the agency is struggling to keep up.
“We are always optimistic, because we are supported by incredibly generous New Yorkers,” he said.
People keep spending
Despite the price hike, consumers have been resilient, continuing to spend even as inflation-adjusted wages contracted by 3% over the past year.
Jonathan Silver, CEO of Affinity Solutions, which tracks consumer behavior through credit and debit card transactions, said spending is up at a healthy pace, about 10.5% over last year, although inflation is affecting behavior.
“When you start looking at specific categories, there’s been a lot of change in spending, and as a result, some categories are being affected more by inflation than others,” he said. “People are delaying their spending on discretionary items.”
For example, he said spending at department stores was down 2.4% from last year, while spending at discount stores was up 17%. Amusement park spending is down 18%, but movie theaters are up 92%. Some of these numbers are affected by rising prices, but they also generally reflect transaction levels.
Silver expects discretionary spending to increase as inflation eases.
“We believe there will be a spike towards the end of the year that will create an upward slope of spending in key segments where consumers are procrastinating and procrastinating,” he said. “Consumers can get a holiday gift of some comfort in food prices.”
Meanwhile, the year-on-year inflation pace is still running at 8.5%. It’s the most aggressive increase in 40 years and a “worryingly high rate,” said Rick Ryder, chief investment officer of global fixed income at asset management giant BlackRock.
At the heart of concerns about global growth are the Federal Reserve and concerns Raising its interest rates to control inflation would slow the economy so much that it would fall into recession.
After Wednesday’s report, traders shifted their bets that the Fed expects to hike by just half a percentage point to 0.75 percentage points in September, a move that Rieder said could be wrong.
“Combined with last week’s strong labor market data, and perhaps especially still strong wage gains, today’s persistence of strong inflation data puts Fed policymakers firmly on track to continue aggressive tightening,” he wrote.