Weekly Update 08/16/2024: Consumer and Producer Prices Paint Benign Inflation Picture
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Producer Prices
According to the Bureau of Labor Statistics, U.S. producer prices for July rose 0.1% from a month earlier. The median forecast in a Bloomberg survey of economists called for a 0.2% gain. Core PPI, which excludes food and energy categories, was unchanged last month compared to June. That resulted in a 2.4% annual rise. In the overall report, services categories fell 0.2% while the price of wholesale goods rose 0.6% led by a pickup in food and gasoline prices. Certain categories in the PPI get inputted into the all-important personal consumption expenditure price index which the Fed prefers due to its thoroughness. Most of those areas, like physician care costs and airfares, declined last month which is a good sign for the Fed as they look for clues that inflation has been contained.
Consumer Prices
The Labor Department reported on Wednesday that consumer prices rose 2.9% from a year-earlier in July which was slightly below the consensus estimate of 3.0%. Core CPI rose 3.2% over the previous twelve months and 0.2% since June. This report was the third consecutive reading which showed that core prices rose 0.2% or less on a monthly basis. The first three months of the year saw monthly core readings of 0.4% which was a big reason why the Fed did not consider any rate cuts during the first half of the year. The report, however, was not “perfect” as 90% of the monthly advance was due to increasing housing costs, which accelerated from June (+0.4% in July vs. +0.2% in June vs. +0.2% in June 2023) as both primary rents and owners’ equivalent rent shot higher. Shelter expenses represent the largest category within CPI services. After the +0.2% growth reading in August 2023, there are five straight months of +0.1% gains in that metric. The fear is that “base effects” will work against the Fed, whereby easy comparisons are now simple to surpass inflating the overall figures and creating a cautionary signal.
Contrary to shelter, many categories moved considerably lower. Prices fell last month for apparel, new and used cars and airfares. Hospital services fell by the most on record. Energy prices were flat. The overall trend continues to be for inflation to decelerate in the coming months. Between now and the next Federal Open Market Committee meeting on September 18, there will be plenty of economic data points to analyze. Given that inter-meeting cuts are rare because they usually are response to unique, global-market moving events (e.g., September 11, global pandemic) and come with very negative connotations, the Fed will have plenty of time to see how the economy is unfolding over the next month. According to the latest note from Bloomberg Economics: “The soft CPI report will likely give Fed officials modestly more confidence that inflation is on the way down. Even though July’s core PCE inflation print won’t be as good, we expect the Fed to cut rates in September due to the rising unemployment rate.”
Company Events
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