Is 'as expected' good enough?
Weekly Bond Commentary
Consumer prices rose 0.2% in July, as expected, and 3.2% over the last year, slightly better than anticipated, though a little higher than in June. Is that good enough to keep the Federal Reserve on the sidelines at its September 20 policy meeting?
In July, core goods prices fell and service costs, excluding energy and rents, rose relatively modestly. New and used car prices fell, as did airline fares and medical care. But food, gasoline and shelter costs rose. The overall pace of price increases next month should show year-over-year moderation, as there were 0.6% monthly gains in core prices in August and September of 2022 that should roll off. More economic data will be released before the Fed meeting, but the trend of declining inflation is positive.
Weekly jobless claims increased more than expected, rising from 227,000 to 248,000. But a large chunk came from Ohio, which represents only 3.5% of the national labor force. Yet, even excluding these, jobless claims continue to trend higher, matching the gradual slowing of the economy in general.
According to the University of Michigan sentiment survey, consumers remain confident and see substantial improvement from three months ago. Inflation expectations for the year ahead continue to recede (from 3.4% to 3.3%), though remain at 2.9% for the longer term, in line with their 2.9-3.1% range over the last two years. Price considerations for durable goods purchases reached their most favorable reading since July 2021.
Probably most important for consumer willingness-to-buy is that news about high inflation and a “bad economy” has declined substantially, which likely will support improving customer attitudes in the months ahead. In short, people appear to believe inflation has turned a corner.