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Thursday 10 August 2023

The Daily Money: Inflation edges higher as economists weigh odds of recession

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While July's numbers ended a 12-month streak of slowing consumer price increases, inflation is far off the historic levels of June 2022.

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The Daily Money

ALL THE MONEY NEWS YOU NEED TO KNOW

Thu Aug 10 2023
 

Brett Molina |  Consumer Tech Reporter

@brettmolina23

It's Thursday, a big day if you've been keeping tabs on consumer prices. It's Brett Molina here with your roundup of Daily Money headlines.

Let's start with inflation. Consumer prices inched up 3.2% from a year earlier, up from 3% in June. While July's numbers ended a 12-month streak of slowing consumer price increases, inflation is far off the historic levels of June 2022, when it peaked at 9.1%.

What's falling? Prices for goods such as used cars have declined now that issues with the supply chain have been fixed.

What's rising? Rent. Annually, rent was up 8%, down from 8.3 the previous month. But there is some good news: Economists expect rent increases to ease. Meanwhile, costs for other services such as car repairs and auto insurance have surged.

So is this recession really happening?

For months, economists have discussed the strong possibility the U.S. could enter a recession. Now, more experts believe the economy could achieve a "soft landing," which means growth slows but we avoid a significant economic downturn.

According to a survey by Wolters Kluwer Blue Chip Economic Indicators, economists believe there's a 50% chance of a recession in the next 12 months, down from 56% in July and 61% in May. Why the shift in optimism? They cite the economy's sturdy growth despite the Federal Reserve's historic run of interest rate hikes and cooling inflation.

Before you get excited, there are some forecasters who believe we're underestimating the impact of the Fed's interest rate hike campaign.

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About The Daily Money

Each weekday, The Daily Money delivers the best consumer news from USA TODAY. We break down financial news and provide the TLDR version: how decisions by the Federal Reserve, government and companies impact you.
The recently released May inflation numbers were extremely high -- again. Month after month, government officials, businesses, and individuals hope the upward pressure on prices -- of items such as cars, housing, food, and fuel -- will begin to taper off. In May, the situation got worse. The consumer price index rose 8.6% from the same month a year ago. It was the sharpest rise since December 1981, with fuel oil prices soaring. CPI figures have been regularly tied to several factors. One is supply chains, and mostly driven by the pandemic, key items like computer chips have been on backorder for months. Among the products that require millions of these are cars. Auto inventories have collapsed, pushing up prices. ( This is the most overpriced used car in America .) CPI has also been tied to oil prices. In large part because of the embargo on Russian oil due to its invasion of Ukraine, global supply of oil has tightened considerably. This, in turn, has affected the prices of a range of products from gas, to home oil, to jet fuel. Food costs can also impact consumer prices. Some food prices will eventually be affected by the lack of grain exported from Ukraine. For the time being, other large producers of meats and grains have not been able to keep pace with global demand. Another major factor affecting prices is interest rates. The Federal Reserve has started to raise them aggressively to bring down inflation. However, this has also caused a rise in mortgage rates, which also affects the cost of housing, whether by ownership or rent. Several economists have described the Federal Reserve as flat footed. Former Treasury Secretary and Harvard University President Larry Summers, for example, remarks regularly that if the Fed had started to raise rates last year, inflation would not have gotten out of hand. Inflation, it now seems almost certain, will trigger a recession early next year. As products and services rise in price, the effects on consumer spending and corporate margins will be considerable. To determine the household items that are soaring in price, 24/7 Wall St. reviewed the Bureau of Labor Statistics' Consumer Price Index Summary May report. Prices are compared to May 2021. In May, the cost of fuel contributed substantially to the overall increase in prices. Fuel oil was up over 100% from the same month last year. Gas prices, depending on the blend, were up 40% to almost 50%. The price of some food items also rose quickly. Eggs prices were higher by 32%, while the price of some chicken products jumped almost 20%. ( This is the price of bacon and eggs the year you were born .) The news about the May CPI was awful. Perhaps worse is that the rise is not expected to end soon.

The CPI report shows annual inflation rose slightly in July, interrupting a year-long streak of waning price hikes. Core price hikes stayed elevated.

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