Scoping Out Peak Inflation
When investors talk about peak inflation, they aren’t defining it as a peak in prices followed by an actual decline. Peak inflation would better be described as a peak in the rate of inflation followed by a slowdown in the rate of inflation.
Since the beginning of 2021, it has been rare for the monthly Consumer Price Index to rise less than forecast, according to Bespoke.
July’s CPI was unchanged, per the U.S. Bureau of Labor Statistics (BLS). Excluding food and energy, the core CPI rose 0.3%. Analysts surveyed by Investor’s Business Daily had expected 0.2% and 0.5% respectively. Inflation came in below expectations.
Annually, the CPI slowed from 9.1% to a still high 8.5% and the core CPI held at 5.9%.
The CPI contained both good news and less favorable news. The headline was encouraging. It was skewed by a large and welcome drop in energy prices. Falling airline fares, a big drop in hotels, and a decline in used autos also kept a lid on July’s CPI.
But food prices continued to soar, and rent was higher. Excluding energy, the CPI rose a still strong 0.4% in July versus the prior month.
Besides the generally favorable CPI, the Producer Price Index, which is also compiled by the U.S. BLS and measures prices at the wholesale level, continued to soften.
Investors didn’t dismiss the relatively favorable numbers. If inflation has peaked and is heading lower, it would probably slow the pace of rate hikes late in the year and next year. But don’t count on that immediately.
In July, Fed Chief Powell reiterated he wants to see “compelling evidence that inflation is moving down, consistent with inflation returning to 2%.” One month isn’t enough, and the Fed hasn’t ditched its 2% annual inflation goal.
Besides, in June, Powell said, “Inflation came down over the course of the summer (2021) and then turned right around and went back up.” Comments like that suggest a ‘we won’t get fooled again’ mindset, as Fed officials hope to reestablish their inflation-fighting credibility.
In summary, inflation hasn’t gone away, and price stability won’t return overnight. Still, signs that inflation may have peaked has gotten the attention of investors.
If you have any questions or would like to discuss any other matters, please let me know.
Clark S. Bellin, CIMA®, CPWA®, CEPA
President & Financial Advisor, Bellwether Wealth
402-476-8844 cbellin@bellww.com
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