Telemus Weekly Market Review July 11th - July 15th, 2022
Inflation does not yet seem to be abating. This past week, the Bureau of Labor Statistics published June’s Consumer Price Index (CPI), the standard barometer for inflation. It showed that prices rose, in aggregate, 1.3% in June alone. Over the past twelve months, inflation has climbed 9.1%. While continued inflation was not a surprise, the magnitude of June’s price increases was. The key influences driving June’s reading were higher gas prices, rising grocery bills, and the growing cost of housing.
Looking ahead, in the short-term easy comparisons from the third quarter of last year, where monthly inflation was 0.5% or lower, is likely to result in the annual rate of inflation continuing to climb, with the possibility of it exceeding 10%.
Source: Bureau of Labor Statistics, Consumer Price Index - June 2022
Alternatively, we’ve seen stability in Core CPI, or the CPI excluding more volatile food and energy items. Trailing 12-month Core CPI has now declined for four straight months. This divergence between aggregate CPI and Core CPI demonstrates how significant of an influence food and gasoline prices have been on pushing the broad-based CPI reading higher.
Source: Bureau of Labor Statistics, Consumer Price Index - June 2022
As it relates to food and gas prices, we’ve started to see some relief in that regard. Since peaking on June 8th, the price of West Texas Intermediate crude oil has declined from $122 to Friday’s close near $97. Falling oil prices are beginning to translate to lower prices at the pump, with the U.S. average gasoline price declining from $5.01 to $4.52 over the past month¹. This is not only good for consumers filling up their tanks, but for businesses that have had to endure significant increases in freight costs. We’ve seen similar trends with the price of agricultural commodities such as wheat, corn and livestock. It can take time for changes in agricultural commodities to filter through to prices at the store, but there are increasing signs that food inflation may be abating. Lastly, another inflationary driver has been higher wages. Recent monthly employment reports have shown wage gains starting to level off, which while not good for individuals seeking to keep up with inflation, does reduce one additional factor influencing decisions to raise prices.
Based on what we see today, our best guess is that we continue to see inflation pressures, particularly among annualized inflation readings, for the next few months. However, as we get into the fourth quarter, we could see inflation flexing lower. It’s likely to remain ahead of the Fed’s 2% target well into next year, but signs are starting to form that the rate of inflation may be nearing a peak.
¹Source: AAA Daily National Average Gasoline Prices
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