A customer at a wholesale warehouse in Washington in January.MICHAEL REYNOLDS (EFE)
Although the global stock market storm that shook the markets last week quickly subsided, concerns about a hard landing for the US economy persist and inflation is in the spotlight. Three indicators, the producer price index – which rose less than expected – the CPI and retail sales data, will successively shed new light between Tuesday and Thursday on household spending and, in particular, on whether inflationary pressure is under control, after the moderate 3% in June. The CPI reading for July indicates this.
Data released Wednesday by the Bureau of Labor Statistics confirmed analysts’ forecasts. In July, the CPI rose by 0.2%, and by 2.9% on an annualized basis, compared to 3% in the previous month. Core inflation, which does not take into account the most volatile food and energy prices, also rose by 0.2% in July (compared to 0.1% in June) and by 3.2% on an annualized basis, compared to 3.3% in the previous month. General inflation registered the smallest increase in 12 months since March 2021, and core inflation, since April 2021, just before the start of the vaccination that caused the recovery – and warming – of the US economy after the pandemic. Despite the fall, the rate is still far from the Federal Reserve’s target of 2%.
Housing led the increase, rising 0.4% in July, accounting for nearly 90% of the monthly increase for all items. The energy index was unchanged, having declined in the previous two months. Prices for the general shopping basket rose in July by the same amount as in June, up 0.2%. Indexes that rose in July included housing, auto insurance, home furnishings and functioning, education, entertainment and personal care. In contrast, prices for used cars and trucks, health care, airline tickets and clothing were among those that declined during the month.
These are data that will be closely watched by the Federal Reserve at its September meeting, but also by the candidates in the November elections, who have made inflation a battle horse in their campaigns. The CPI reading is not the only one that the Fed’s monetary policy committee values; in fact, its favorite measure is the PCE index, a deflator of personal consumption expenditures. But if the employment data – the Fed’s other key indicator – last month raised alarms about the possible slowdown of the economy, the markets received a positive report on inflation on Monday, the monthly survey of consumers from the Federal Reserve of New York, which is also closely followed, showed that the three-year inflation outlook of those surveyed has improved to a new low.
Traders in the bond market had expected the July data to signal a faster pace of interest rate cuts by the Federal Reserve, though they remain divided on whether the central bank will opt for a quarter- or half-point reduction in September. Last month’s tepid CPI report helped the S&P 500 hit a new high, only to fall on concerns about growth. The encouraging sign for Fed hawks is that oil prices fell on Tuesday, after rising for several days. Slowing global demand appears to have offset fears of an imminent attack by Iran and its proxies on Israel, which could trigger a broader conflict in the Middle East.
The persistence of core inflation is what worries the Fed the most. By the end of 2023, it had largely recovered to pre-pandemic levels, but the rapid increase in rents in the CPI data continued for most of the first half of 2024. In June, however, they slowed sharply, recording the smallest monthly increase since mid-2021, followed by the slight rebound in July. Rents are the most important category in the overall index, so they have a large impact in determining the overall trend. “June’s downward shift in primary housing appears sustainable based on the BLS New Tenant Rent Index and private sector vacancies,” advanced Sarah House and Aubrey George of Wells Fargo. “We expect another 0.3% increase in July [ha subido un 0,4%] and that the main residence will increase between 0.25% and 0.30% per month until the end of the year.”
Bonds broadly advanced on Tuesday after the producer price gauge rose less than expected in July. Results from all three gauges due this week should give another clue about the strength of the economy, despite signs of a slowdown. Home Depot, the home improvement giant, on Tuesday issued a weak sales outlook, which it said was caused by consumers continuing to struggle with inflation and higher interest rates. It’s another bad sign for the housing and home improvement market. Results from retail giant Walmart, the nation’s largest employer and an accurate gauge of consumer spending, are eagerly awaited on Thursday.
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