This was a good week for inflation numbers, but whether it can last is the big question

Prices at the gas station in Bethesda on August 11th, 2022.
Mandel Ngan | AFP | Getty Images

More good news for inflation Friday was that import prices dropped more than predicted and provided some relief for consumers.

The report capped off a relatively upbeat week for those worried about rising prices — and “relatively” is the operative word — as the U.S. is on pace this year to import just over $4 trillion of goods and services this year, according to the latest Bureau of Economic Analysis data.

Americans pay enormous bills every month for food, energy, and many other essentials in daily life. Any respite from these high-priced items is welcomed. Even though the month-over year decrease in imports was 1.4%, it is not the first.

This news came after earlier reports that neither wholesale and retail price increases abatedFor the month. The month saw a 0.5% drop in producer prices and a flat result for consumers, including fuel, due to the sharp fall of most energy companies.

People are noticing: A New York Federal Reserve survey released MondayConsumers expect inflation will remain high, but less than in the previous month. On Friday, the University of Michigan consumer sentiment survey — whose ups and downs tend to ride in tandem with prices at the pump — was higher than expected, though still just off record-low levels hit in June.

“This is just one Report”

All things considered, these numbers give cause for optimism. It’s best to not be exuberant.

The consumer price index (CPI) is not yet up 8.5% from a year agoWhile the producer price indexDuring the same time, it has risen 9.8%.

Krishna Guha heads Evercore ISI’s global policy and central banking strategy. In a client note, he cautioned, “while it seems that inflation pressures may have finally peaked,” that the “report is inconsistent with the notion that this is a one-off report.”

Thomas Barkin, President of Richmond Federal Reserve, made similar comments Friday. The central bank official told CNBCHe said that the inflation news was welcome, but added that there wasn’t any reason for him to reverse the rate hikes that economists worry will cause the U.S. to enter a recession.

Guha said that there is still a lot of work to be done before the Fed can feel confident enough to lower rates because inflation has slowed down.

Investors and the Fed will have a chance to examine next week how inflation has affected spending.

View as the consumer

According to FactSet the Commerce Department will release a Wednesday advance report that shows a small 0.2% gain in July retail sales, after an increase of 1% in June. This report does not include inflation adjustments.

However, opinions are varied as to where these numbers may land.

Citigroup said its credit card data show a potential 1.1% decline for the month, while Bank of America said it sees a 0.2% decrease, though control group spending — excluding a variety of volatile categories — may have risen 0.9%.

Fed officials are going to be closely watching for signs of inflation impacting Main Street.

Joseph Brusuelas chief economist at RSM stated, “It appears that a tentative peak is in place.”

But he stated that the numbers this week are not likely to influence a Fed which wants to bring inflation below the central bank’s 2% target.

He stated that July’s inflation did not alter Fed policy. Any notion of a Fed pivot should be rejected. We are still months from any clear, convincing evidence suggesting that inflation has retreated to the target of 2% that is currently defining price stability.

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