Inflation is the greatest threat to U.S. growth. July’s data will show that at most some point, there has been some improvement.
These prices are flat for the monthAs measured by items the Bureau of Labor Statistics monitors for their consumer price index. This was the first month that the aggregate measurement hadn’t seen a monthly increase in the index since May 2020. The widely-followed index had a slight decline.
CPI recorded its fastest 12-month growth since November 1982. It was the result of an upward trend that saw economic growth slow down for half the year. talk of a recession.
However, the economic outlook is gaining momentum with the abating rate of price growth and a short-term trend.
There is no recession for the moment
Aneta Markowska (chief economist at Jefferies) stated that “the whole recession narrative really has to be put on the shelf for now.” It will be changing to a stronger for-longer narrative that is supported by a reverse in inflation, I think.
Markowska has forecasts that have proven accurate this year and sees steady growth for the short term. This includes a growth rate of 3% in the third quarter. Atlanta Federal Reserve GDPNow gaugeThe, an economic monitoring service that tracks real-time data, reported a 2.5% increase in Wednesday’s update. This is up by 1.1 percentage points since its Aug. 4th update.
Markowska believes that the pressures for 2023 will intensify, and that a recession is likely to occur in the latter part of the year.
There was some room for both of these arguments. the CPI report.
The drop in energy prices was the main reason for inflation’s tempering. The biggest monthly drop in gasoline since April 2020 was 7.7%. As energy commodity prices fell 7.6%, fuel oil plunged 11%
The trend of ticket prices rising 27.7% in the last year has been reversed by a 7.8% drop in airline fares.
There were no signs that inflation had declined in this report. Food costs are particularly high. Actually, the Food Index rose 1.1% per month. Its 10.9% rate over the past year is the highest pace of inflation since May 1979.
This is causing concern at City Harvest which feeds the hungry New Yorkers that have been particularly hard hit by last year’s price rise.
Jilly Stephens (CEO of the organization) stated that she is seeing more children enter food pantries. Before the outbreak, food insecurity was a problem that had never been solved. We are seeing more people turning to food pantries due to rising costs.
Stephens claimed that children seeking food aid have more than doubled over the past year since the Covid pandemic. The organization has been struggling to meet this demand.
She said, “We are always optimistic because of the support we receive from incredibly generous New Yorkers.”
People continue to spend
Consumers have maintained their spending habits despite the rise in prices. This is despite inflation adjusted wages falling by 3% during the past year.
Jonathan Silver, the CEO of Affinity solutions, which monitors consumer spending through debit and credit card transactions, stated that while there is an increase in consumption, it is still at a healthy rate, about 10% more than last year. However, inflation is having an impact on behavior.
He said that inflation is affecting certain categories more than others when you look at them individually. People are delaying spending discretionary items.”
According to him, department store spending fell 2.4% last year and discount store shopping has increased 17%. While amusement park spending has fallen 18%, move theatres have risen 92%. Although some numbers may be affected by increasing prices, most reflect transactions.
Silver anticipates that discretionary spending will increase as inflation decreases.
He said that he believes there will be an increase in spending later in the year, which will cause a rise in spending in key categories in which consumers have been delaying or deferring their spending. The holiday gift of food price relief may bring some comfort to consumers.
The year-over-year inflation rate is currently at 8.5%. It’s only a small amount of inflation and a worryingly high rate, according to Rick Rieder (chief investment officer global fixed income for BlackRock).
Concerns about global economic growth are centered around the Federal Reserve. its interest rate hikes aimed at controlling inflationIt will lead to a slowdown in the economy that will eventually cause it to fall into recession.
After Wednesday’s report traders changed their expectations to expect the Fed to raise just half of a percentage point in September. This is a shift from the trend towards 0.75 percentage points that was previously observed, which Rieder suggested could prove to be wrong.
“The persistently solid inflation data seen today when combined last week’s strong labor markets data and maybe especially the still solid wages gains places Fed policymakers on the path to continued aggressive tightening,” wrote he.