It’s been a good week for inflation numbers, but the big question is whether it can last

Gas station prices are seen in Bethesda, Maryland, August 11, 2022.

Mandel Ngan | AFP | Getty Images

There was more good news on Friday for inflation as import prices fell more than expected and brought some much-needed relief to consumers.

The report ended a relatively optimistic week for those worried about rising prices – and “relatively” is the key word – as the United States is on course to import just over 4,000 this year. billions worth of goods and services, according to the latest Bureau. economic analysis data.

With Americans already paying huge bills for food, energy and a host of other items in their daily lives, any respite is welcome. After all, the monthly decline in import prices of 1.4% was only the first this year, and the year-over-year increase is still over 8.8%.

This news followed reports earlier in the week that increases in wholesale and retail prices eased during the month. Producer prices fell 0.5% and consumer prices, including food and fuel, were flat, both figures largely due to a sharp drop across most of the energy complex.

People are taking notice: A New York Federal Reserve survey released on Monday showed consumers expect inflation to remain high, but not as high as in previous months. On Friday, the University of Michigan Consumer Sentiment Survey – whose ups and downs tend to go hand in hand with prices at the pump – was higher than expected, though it was just under record levels reached in June.

“It’s just a report”

Taken together, the numbers warrant at least some optimism. But it’s probably wise to put the exuberance on hold.

The consumer price index is still up 8.5% from a year ago, while the producer price index jumped 9.8% over the same period.

Krishna Guha, who leads global policy and central bank strategy for Evercore ISI, warned in a client note on the CPI that, “although the report is consistent with the idea that inflationary pressures may finally have reached a summit, it is only a report”.

Similar comments came Friday from Richmond Federal Reserve Chairman Thomas Barkin. The central bank official told CNBC the inflation news was “very welcome,” but added he saw no reason to back down from interest rate hikes that some economists say will lead to the United States in a recession.

“There’s a very long way to go before the Fed feels it has enough compelling evidence that inflation is moderating to stop raising rates,” Guha added.

The Fed and investors will see the impact of inflation on spending next week.

Consumer view

Wednesday’s advance report from the Commerce Department is expected to show a modest 0.2% overall gain for July in retail sales after a 1% increase in June, according to FactSet. The report is not adjusted for inflation.

However, there is a wide range of opinions on where the numbers might land.

Citigroup said its credit card data shows a potential decline of 1.1% for the month, while Bank of America said it expected a 0.2% drop, although the group’s spending by control – excluding various volatile categories – may have increased by 0.9%.

Fed officials will be closely watching the broader trends of inflation’s impact on Main Street.

“It looks like a temporary spike in inflation is in place,” said Joseph Brusuelas, chief economist at RSM.

However, he said this week’s numbers are unlikely to do much to sway a Fed that intends to cut inflation to the central bank’s 2% target.

“I think July inflation does nothing to alter the Fed’s policy trajectory, and any notion that a Fed pivot is within reach should be dismissed,” he said. “We are months away from any clear and convincing potential evidence that inflation is on its way back to the 2% target that currently defines price stability.”

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