Both the retail Consumer Price Index (CPI) and wholesale inflation index for raw materials—the Producer Price Index (PPI)—fell in July. Since the PPI feeds into retail prices, it’s a sure sign that inflation is on the wane.
The more important U.S. CPI index was unchanged in July, the Labor Department said Wednesday, compared with the 1.3 percent gain in the prior month. The rate of inflation in the 12 months ended in July retreated to 8.5 percent from a 41-year high of 9.1 percent in June. Energy prices were the main culprit, up 33 percent YoY (black bar in BLS graph.).
But gas prices have been plummeting of late. The nationwide average price for a gallon of gas dropped to $3.99 on Thursday, according to AAA. That’s down 20 percent from the mid-June high, and it’s the first time the average has dipped below $4 since early March..
Both indexes brought the annual increase of core products without volatile food and energy fluctuations back into the 5 percent range, which is till high, but causing markets to breathe easier, because it substantiates that most of the price pressure was due to short term events, like a return to more normal activity from the COVID pandemic, which was a 100-year event, and the Ukraine war’s effect on energy and food shortages.
There are still supply-chain shortages as other countries begin to catch up to the surging demand by American consumers to buy anything and everything available in goods and services.
And there is some good news on that front as well. The Biden administration signed into law the Ocean Shipping Reform Act last June, which is engineered to bolster the maritime commission’s authority to regulate shipping that goes into American ports, which is dominated by foreign carriers.
“The law directs the agency to bulk up enforcement while creating systems that make it easier for aggrieved shippers to file complaints,” says Peter Goodman of the NY Times. “It increases the agency’s funding 50 percent by 2025.”
“The passage of the law has already had an impact, say exporters,” continues Goodman, “prompting ocean carriers to make more containers available at West Coast ports. It has also changed perceptions about the commission’s once-cozy dealings with the carriers.”
Nine container ship carriers dominate the Asia to North America imports, which the U.S. importers would have no control over without more government oversight and regulation. It’s one more example of the U.S. government’s role in keeping us growing during the trying times Americans are currently experiencing.
The closely watched “core” CPI measure of inflation that omits volatile food and energy rose 0.3 percent in July, down from a 0.7 percent gain in the prior month. The 12-month rate remained steady at 5.9 percent.
The U.S. producer price index fell 0.5 percent in July, the Labor Department said today. That’s down from a 1.0 percent jump in June and the first negative monthly print since April 2020.
Core PPI prices are up 5.8 percent from a year earlier, down from 6.4 percent in June. And the cost of goods fell 1.8 percent in July, the largest decline since the 2020 pandemic recession (my emphasis).
These results show that it will take a concerted private-public effort to further tame our inflationary impulses if we want to slow down the Fed’s rate increases and return economic growth to the plus column for the rest of this year.
In fact, governments working together to fix the energy and food shortages worldwide would have the greatest effect on inflation and return all of us to less trying times.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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