US inflation was benign again in July, crucial figures released on Wednesday showed.
Core price growth across the world’s largest economy was 0.165% on an unrounded basis last month, the BLS said. Consensus expected 0.2%.
From the same month a year ago, the core gauge rose 3.17%, marking a new “since April of 2021” low.
The headline gauge rose 0.155% unrounded and 2.9% YoY, with the latter slightly below estimates.
Nothing in the release stood out as especially remarkable. Food at home prices rose 0.1% MoM, extending a long run of favorably slow advances and/or flat readings and even declines, which together managed to push the YoY pace of grocery inflation in the US down to 1.1%. At the worst levels two years ago, it was a wholly intolerable 13.5%.
The energy gauge was flat following consecutive 2% MoM declines, the electricity index rose slightly after falling the prior month and both new and used car prices remained in deflation falling 0.2% and 2.3%, respectively from June. Apparel prices dropped the most on a month-to-month basis since January.
Shelter was a blight, but I doubt anyone’s surprised. The main gauge posted a 0.4% advance after rising just 0.2% the prior month. That increase accounted for substantially all of headline inflation in July. In other words, were it not for shelter inflation, there wouldn’t have been any inflation last month on net. (Thankfully, people don’t need a place to live. There’s always the park bench, and it’s free if you’re willing to fight for it.)
I don’t want to trivialize the most important (or second-most important behind NFP) macro data point on Earth, nor the plight of the many millions of Americans for whom this “relief” is no relief at all (inflation’s cumulative), but for the purposes of market participants and those of us fortunate enough to be insulated from the harsh economic realities on Main Street, there’s nothing to see here. This is over.
It’s not a “victory” for the Fed on any common sense definition of the term, but from the perspective of monetary policy — which, notwithstanding Jerome Powell’s insistence on the Fed’s monastic dedication to public service, is just as disconnected from the real world as you’d expect given the complete absence of everyday people on the FOMC — this crisis is in the rearview. A September rate cut’s guaranteed and if the August NFP headline comes in below 100,000, a 50bps cut is a very real possibility, if not the most likely outcome.
Wednesday’s data marked the fourth consecutive benign US CPI report and came on the heels of a similarly favorable read on wholesale prices Tuesday. Note that the “tie” is now broken: Out of seven 2024 CPI reports, four suggest the disinflation process is proceeding apace.
The CPI-derived “supercore” measures were likewise benign, albeit a little warmer from the prior month. Core services CPI ex-shelter rose 0.21% last month and core services ex-OER / rent by the same tolerable 0.21%.
Two comments on this front. We still have to remember that 2% price growth compared to last year doesn’t mean anything actually went down. Prices are just getting bigger at a slower rate. Even at 2% inflation, every five years prices will be up nearly 11% compared to five years earlier and so forth. As H pointed out, inflation is cumulative. The two percent goal is meant mostly to reduce the cost to borrowers looking to pay back debts more cheaply.
The other comment is that some very important aspects of our life are ticking time bombs. Experts are forecasting that the demand for electricity is expected to rise 50% during this current decade. If that happens, and it seems likely that it will between rising EV production and a rapid rise in data center construction, the cost of electricity will begin to rise quickly. While those of us lucky to make a good living won’t notice this, those in the bottom 50%, the ones who are the base of consumer demand, are going to be hurt badly. Rising property taxes and rising electricity could easily whack those consumers with several hundred dollars a month on top of shelter, and fuel (you know, the bogey we don’t like to count). I see little downward movement in prices and the elephants who want to enter the room are now at the door. I try to look at things others may miss but I know Powell sees more data than I do. As my friends and I used to say, “he knows.”