PrefBlog

US inflation was down a little this month:

Inflation cooled in July as gas prices and airfares fell, a welcome reprieve for consumers and economic policymakers but not yet a conclusive sign that price increases are turning a corner.

The Consumer Price Index climbed 8.5 percent in the year through July, compared with 9.1 percent the prior month, a bigger slowdown than economists had projected. After stripping out food and fuel costs to get a sense of underlying price pressures, prices climbed by 5.9 percent through July, matching the previous reading.

• On a monthly basis, the price index did not move at all in July. That’s because fuel prices, airfares and used cars declined in price, offsetting increases in rent and food costs.
• Core inflation was also slower than economists had expected on a monthly basis, climbing by 0.3 percent. In June, that figure was 0.7 percent.
• Today’s report is probably welcome news at the White House and the Federal Reserve, both of which have been waiting for inflation to decelerate.
• But it’s easy to overstate how much July’s slowdown matters. Inflation is still abnormally high. The decline owed in large part to gas prices, and they can always jump again.
• There are some real reasons to believe inflation will slow in the months ahead: Supply chain pressures, for instance, show signs of easing.
• But there are also reasons to worry. Wage growth remains rapid. And housing costs, particularly rents, continue to climb, which could keep inflation high for some time.

This was reflected in the New York Fed’s underlying inflation gauge:

• The UIG “full data set” measure for July is currently estimated at 4.7%, a 0.1 percentage point decrease from the current estimate of the previous month.
• The “prices-only” measure for July is currently estimated at 5.9%, a 0.1 percentage point decrease from the current estimate for the previous month.
• The twelve-month change in the July CPI was +8.5%, a 0.6 percentage point decrease from the previous month.
  • -For July 2022, trend CPI inflation is estimated to be in the 4.7% to 5.9% range, a similar range to June, but with its lower and upper bounds both 0.1% lower.

PerpetualDiscounts now yield 6.03%, equivalent to 7.84% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.73%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained at the 310bp reported August 3.

This entry was posted on Wednesday, August 10th, 2022 at 7:05 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.