Economic Data Tracker –
Inflation appears to have peaked

Trend watch and what’s new this week

COVID-19 continues to fade. This week, the CDC relaxed several key guidelines, including recommendations for quarantines after possible exposure and screening asymptomatic people in most settings. Also, the rate and percentage of COVID-19 hospitalizations are drifting lower.

Meanwhile, some of the activity-based data (slides 5 and 6) has ebbed WoW. Most of travel-related data slipped modestly to start August, including hotel occupancy, air passenger counts, and restaurant bookings, but all are coming off unusually strong late July figures. Similarly, temp staffing and rail traffic dipped in early August from stronger July data.

Key metrics show inflation is cooling

Inflation, as measured by the Consumer Price Index (CPI), cooled in July, up 8.5% from a year ago compared to 9.1% in June. Energy prices dropped 4.6% MoM, helped by sharply lower gasoline prices. On slide 7, we show the MoM and YoY trends for both headline and core CPI, which excludes the volatile food & energy components. On slide 8, we look ahead at several CPI scenarios, showing how inflation might unfold over the coming year.

Wholesale inflation readings, known as producer prices (slide 9), also cooled, falling 0.5% MoM in July. Core PPI cooled for a fourth straight month, up 7.6% YoY compared to 9.7% in March. Of course, wholesale prices eventually work their way into consumer prices.

After falling during the pandemic, rents spiked during 2021. Now the Zillow Rent Index shows that rental price growth has continued to moderate on a month-over-month basis, up 0.6% in July (slide 10). While still above the pre-pandemic pace of 0.45%, that was the smallest increase in the past six months and was less than half of the 2021 average of 1.3%. 

Our take

The crosscurrents within the economic data persists. Inflation pressures are very real, especially for those on the lower end of the income spectrum. Despite cooling substantially (which is a very good sign), both consumer and wholesale inflation in July remained well above the norms from the past decade.

The July CPI and PPI figures, along with several other reports – including the ISM Manufacturing and Services indices – give us some hope that peak inflation is likely in our rearview mirror. Given other demand softness, it probably has peaked. Still even with the sharp declines, which we highlighted here last week, U.S. gasoline prices remain more than $1 per gallon higher than pre-pandemic levels. 

To read the publication in its entirety, select "Download PDF," below.