economic week will be dominated by inflation with Tuesday’s report on consumer prices | Economy

Earlier this year, as the prices of basic necessities such as gasoline and groceries began their inexorable rise, economists and market analysts seized on the monthly price index reading consumer to find signs of just how entrenched inflation was.

In June, the annual rate hit 9.1%, its highest level in four decades, stunning most observers and prompting the Federal Reserve to raise interest rates by three straight quarter-points.

Now, however, with the rate falling to 8.5% in July, the focus has shifted to seeing how much inflation is receding from its peak, if that has indeed been achieved. On Tuesday, the government will release the CPI for August, with expectations that it could hit 8% or even break that barrier at 7.9%.

Even if that would still be nearly four times the rate the Fed sets as an average annual target of 2%, it would represent a small victory in the central bank’s battle against the scourge of ever-rising prices. The direction of inflation is often cited by economists as more important than the numerical level.

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The report will be released a week before the Fed meets later this month to review monetary policy going forward. The Fed watches the CPI, but it actually pays more attention to the base rate as well as another measure, the personal consumption expenditure price index.

“Driven by a sharp 12.5% ​​m/m decline in retail gasoline, we expect headline CPI to fall 0.2% in August, marking the largest sequential decline since April 2020,” wrote Sunday Sam Bullard, managing director and chief economist of Wells Fargo.

“If that happens, it would lower the year-over-year rate for the second month in a row to 7.9% from 8.5% in July,” Bullard added. “The drop in travel services and used cars should help keep the core CPI gain at 0.4% m/m (6.1% y/y), which is a bit higher than in July, although a significant improvement from the 0.6%-0.7% monthly gains seen in Q2.”

Tuesday’s figure will have more than purely economic significance. With just two months to go before the critical midterm elections, the White House is eager to see further progress on inflation. Already, gasoline prices have fallen $5 a gallon to about $3.75 today for a gallon of regular gasoline. Notably, ads mentioning GOP candidate inflation have faded in recent days as the Republican Party moves on to issues like crime and culture wars.

However, it is premature to claim victory over inflation. The energy crisis in Europe, with Russia limiting gas supplies to its western neighbors, could further drive up prices around the world. Labor markets remain strong and wages have increased, although somewhat more slowly than a few months ago. And potential strikes in some key industries, like rail freight, could again disrupt supply chains and lead to higher costs for groceries and other essentials.

While longtime Fed watcher Hugh Johnson doubts the Fed will suspend its interest rate hike cycle anytime soon, he sees hope for the future.

“We would add that we expect year-over-year consumer prices and the personal consumer price index to decline significantly through 2023,” Johnson said.

“Will the combination of slowing employment and falling inflation rates lead to a ‘pause’ in the Federal Reserve’s turn to moderation? Everybody’s guessing,” adds Johnson.

On Monday, Adobe released its monthly Digital Price Index showing online prices rose 2.1% in August and 0.4% year-over-year, following a monthly increase of 1% in July. . Grocery prices, however, recorded their largest annual price increase at 14.1%.

“The modest uptick we are seeing in online prices for the month of August is largely due to rising food prices which show no signs of abating, as have seasonal discounts in a category like apparel. gradually disappeared until the end of the summer,” said Patrick Brown, vice president. President of Growth and Knowledge Marketing, Adobe. “Consumer demand for e-commerce also remains stable and will keep prices high, especially for growing categories such as groceries, pet products and other consumer staples.”

And while the consumer inflation report will dominate economic discussions this week, other important data points are due to be released. Producer prices, the costs businesses pay for their goods and services, will arrive on Wednesday, while Thursday brings retail sales for August and the week ends with Friday’s preliminary consumer sentiment report for September.

Edward N. Arrington