This week has been good for the inflation numbers, but the big question is whether it can last

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

Mandel Ngan | AFP | Getty Images

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

The report capped a relatively upbeat week for those concerned about higher prices — and “relatively” is the effective word — as the United States is on track this year to import just over $4 trillion in goods and services this year, according to the latest bureau. from 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 drop in the import price of 1.4% was only the first this year, and the annual increase is still more than 8.8%.

The news came on the heels of reports earlier in the week that both wholesale and retail price hikes eased during the month. Producer prices fell 0.5%, and consumer prices including food and fuel stabilized, both numbers largely due to the sharp decline in most of the energy complex.

People take note: A New York Federal Reserve survey released on Monday showed that consumers expect inflation to remain high but not to the same extent as previous months. On Friday, the University of Michigan’s consumer survey — whose swings tend to go up and down along with prices at the pump — was higher than expected, although still far from record lows hit in June.

This is just one report.

Taken together, the numbers are reason for at least some optimism. But it may be wise to suspend abundance.

The CPI is still 8.5% higher than a year ago, while the Producer Price Index is up 9.8% over the same period.

Krishna Guha, who heads global policy and central bank strategy for Evercore ISI, cautioned in a client note on the CPI that “while the report is consistent with the notion that inflation pressures have finally peaked, this is just one report.”

Similar comments came on Friday from Richmond Federal Reserve Chairman Thomas Barkin. The central bank official told CNBC that news of inflation is “very welcome,” but added that he sees no reason to roll back interest rate increases that some economists fear will drag the US into recession.

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

The Fed and investors will take a look next week at how inflation is affecting spending.

View from the consumer

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

However, there is a wide range of opinions about where the numbers could land.

Citigroup said its credit card data showed a potential decline of 1.1% for the month, while Bank of America said it expected a 0.2% decline, although spending of the control group – excluding a variety of volatile categories – may have risen 0.9% .

Fed officials will be watching closely to see larger trends in how inflation affects Main Street.

“There appears to be a temporary peak in inflation,” said Joseph Brusolas, chief economist at RSM.

However, he said this week’s numbers likely won’t do much to influence the Fed’s intention to bring inflation down to the central bank’s 2% target.

“I think July inflation does nothing to change the Fed’s policy trajectory, and any idea of ​​a Fed pivot within reach should be dismissed,” he said. “We are a few months away from any clear and convincing potential evidence that inflation is on track to return to the 2% target that currently sets price stability.”

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