NAM: Lower Energy Prices Moderate Inflation In July
The Consumer Price Index has risen 8.5 percent over the past 12 months, down from 9.1 percent in June, which was the fastest since November 1981. Core inflation in- creased 5.9 percent year-over-year in July, the same pace as in June. Core inflation has decelerated since March (6.5 percent), which was the highest since August 1982, but continues to rise at a very strong pace. Overall, price pressures for consumers are likely to remain elevated over the coming months, but these data offered some comfort, with signs of possible cooling in inflationary pressures. With more favorable comparison months moving forward, core price growth on a year-over- year basis should continue to moderate somewhat, albeit at still-high rates. The current fore-cast is for year-over- year growth in the CPI to be 6.5 percent at year’s end, with core inflation at 5.0 percent. Likewise, producer prices for final demand goods and services fell 0.5 percent in July, pulling back from the 1.0
Lower energy prices helped moderate inflation measures in July, according to Chad Moutray, Ph.D. and Chief Econ- omist at the National Association of Manufacturers (NAM). After soaring 1.3 percent in June, the fastest monthly in- crease since September 2005, consumer prices were flat in July. Declining energy costs, which fell 4.6 percent in July, helped provide some welcome relief, with gasoline prices off 7.7 percent. Food prices were up 1.1 percent. The average cost of regular gasoline nationally was $4.038 per gallon on Aug. 8, the lowest price since Febru- ary 28, according to the U.S. Energy Information Adminis- tration. A similar measure from AAA reported that gasoline prices averaged $3.978 per gallon nationally last week, falling below $4 for the first time since early March.
percent gain in June and declining for the first time since April 2020. Over the past 12 months, producer prices for final demand goods and services have risen 9.8 percent, down from 11.3 percent in June and the lowest year-over-year rate since October. Meanwhile, core producer prices increased 5.8 percent year-over-year, continuing to decelerate since hitting a record 7.1 percent in March but remaining highly elevated. These data will likely provide mixed com- fort. On the one hand, it is encouraging to see some deceleration in these measures, but even with some easing, prices contin- ue to rise at very elevated levels. For their part, manufacturers continue to cite rising raw material costs as their top challenge, followed closely by supply chain and work- force challenges. The Federal Open Market Committee might increase the federal funds rate by 50 basis points at its Sept. 20–21 meeting in- stead of the 75 basis point hike that some were calling for after the strong labor mar- ket numbers the week before. Incoming data will help to frame the size of the rate hike not only in September, but also for the November 1-2 and December 13-14 meetings. My view is that there will be 25 basis point federal funds rate hikes at each of the final FOMC meetings this year. Another complication for the Federal Re- serve is falling labor productivity for nonfarm businesses, with soaring compensation and unit labor costs. That said, manufacturing la- bor productivity jumped 5.5 percent at the annual rate in the second quarter, bouncing back strongly after declining in the three previous quarters on stronger output.
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