Investors have a packed slate of economic data to look forward to this week, with news reports on consumer and producer price inflation set for release. More corporate earnings results will also trickle in.
This week, one of the closely watched economic data points will be the U.S. Bureau of Labor Statistics consumer price index. This print will reflect the extent of consumer price increases over the past month, with excessive demand still exerting upward pressure on prices during the recovery.
The consumer price index, excluding volatile food and energy prices, is expected to have risen by 4.3% in July over last year, pulling back just slightly from June’s 4.5%, or the fastest pace in three decades. Core consumer prices are also expected to have advanced for the fourteenth consecutive month, or by 0.5% after June’s 0.9% monthly gain.
However, a central debate for investors will be about how long-lasting these price increases ultimately prove to be. Many of the categories of goods that saw the most significant price increases were in areas considered “transitory,” or those closely tied to the rebound in economic activity and reopening of the economy. Prices for used cars and trucks, for instance, surged by 10.5% in June to comprise more than a third of the increase across all items.
“Core CPI averaged an extremely hot 0.8% month-over-month over the prior three months, boosted by skyrocketing used car prices,” Bank of America economist Michelle Meyer wrote in a note Friday. “We expect used car prices to see a slight pullback this month after year-to-date gains in June surpassed the peak year-to-date gain in wholesale prices, suggesting that retail prices may have gotten a little overstretched.”
Airline fares and apparel prices have also been some of the most significant contributors to the overall gains. Demand for these products is expected to moderate as a flood of pent-up consumer demand for travel and going back out begins to settle.
And as economists and policymakers, including Federal Reserve Chair Jerome Powell, have reiterated, many of the increases in the year-over-year inflation data have been exacerbated by base effects, given that this year’s data is being compared to last year’s pandemic-depressed levels.
But other economists are less convinced about the transitory nature of inflation, especially given the magnitude of the price increases so far this year. According to data from Bank of America, mentions of inflation on second-quarter corporate earnings calls have already hit a record high, surging by about 1,100% over last year. Within the Institute for Supply Management’s Services index, the prices paid subindex raced to the highest level since 2005 last month. And wage inflation, which can be stickier than price increases in other categories, has also been a key focus, with companies competing for workers as labor scarcities linger.
“With the U.S. CPI due next week, particular attention should be paid to the 4% wages growth figure despite increased hiring in areas that would ordinarily drive down average wages,” said Josh Mahony, IG senior market analyst, in a note, referring to the 4% increase in average hourly earnings reported in the Labor Department’s July jobs report. “It seems employers are having to pay higher wages in a bid to take advantage of the spike in demand seen in recent months.”
This week’s inflation report will also take on additional emphasis as one of the last economic prints before the Federal Reserve’s conference at Jackson Hole, which will take place August 26-28. Central bank officials have suggested they look especially closely at the pace of the labor market’s recovery to ascertain whether the economy has reached the “substantial further progress” threshold that would trigger a pivot on monetary policy. Still, however, the inflation data will provide another data point as to how quickly the Federal Reserve may need to step into the hot tempera economy.