40-year record high inflation of 9.1% is driving up the price of everything from gas to groceries, according to a recent Bureau of Labor Statistics report.
The consumer price index was unchanged in July, the first month without an increase since May 2020. But, this does not suggest that the inflation problem has gone away, despite political wishful thinking, states Brian Wesbury, Chief Economist, First Trust.
This Week's Monday Morning Outlook – "Silly Season" – https://t.co/pXgMO89Olf
— Brian Wesbury (@wesbury) August 15, 2022
Energy prices surged 7.5% in June and then dropped 4.6% in July. That’s what you really need to know about inflation in the past two months. As a result, overall consumer prices soared 1.3% in June and then were unchanged in July. But a new inflation trend this doesn’t make. Looking at both June and July, combined, consumer prices rose at an annualized 8.1% rate. That is no different at all than the 8.1% annualized increase in April and May, before the extra surge in energy prices in June then the drop in July.
Some 96% of global economists said they expect the U.S. to face “high” or “very high” levels of inflation for the rest of the calendar year, according to a World Economic Forum (WEF) report. Inflation refers to when prices for consumers increase, thus driving down the purchasing power of consumers’ money.
If you look at the unchanged CPI in July and think the Federal Reserve is nearly done, you’re in for a big surprise, says Wesbury. The Fed isn’t close to done. Yes, the inflation rate likely peaked at 9.1% in June. But getting from 9.1% down to the 5 – 6% range by sometime next year is the relatively easy part. Getting from there back down near the Fed’s 2.0% target is the hard part. Rents have been increasing rapidly around the country and we don’t see that ending anytime soon, which will make it very tough for the Fed to reach its stated goal.
And, it’s delusional to think that the officially-called “Inflation Reduction Act” is actually going to reduce inflation. Inflation is a monetary phenomenon; the bill passed by the Democrat controlled Congress isn’t going to have any noticeable short-term impact on inflation.
Bottomline, regardless of political affiliations, the economy continues to grow and inflation remains a very serious problem. “Investors need to set aside their personal political preferences and follow economic reports as they are, not as they want them to be,” writes Wesbury.