Cooler-Than-Expected Inflation Numbers:

The Consumer Price Index (CPI) last week showed that inflation was flat in July. Note that a flat or 0.0% reading doesn’t mean inflation fell in July, but rather there was no increase in inflation in July from June. The Producer Price Index (PPI), which measures wholesale inflation fell 0.5% in July. Let's dive into a few key points from these reports.

Rents are now up 6.3% year-over-year. While this data has started to increase, it isn't showing the double-digit rent increases from other rent reports like Apartment List and CoreLogic. Energy prices fell 4.6%, bringing the annual gain to nearly 33%. Gasoline prices declined 7.7% in July but they are up 44% annually. Food costs climbed another 1.1% in July, bringing the year-over-year gain to almost 11%.

The cooler-than-expected July readings mean that the markets are now betting that the Fed will hike the Fed Funds Rate by 50 basis points at their September meeting. The Fed will surely be watching August’s inflation and employment reports closely, as these will also play an important role in their decision.

Import prices were down 1.4% last month, showing the first decline since December and a possible sign that inflation is starting to subside a bit. A big reason for this is that we are importing less inflation due to the strength of the dollar. The Fed acted quickly with rate hikes but as other central banks begin to follow suit, it will be interesting to see if the trend continues.

The NFIB Small Business Optimism Index was reported and, as you'd expect,  small business owners reported that inflation remained their top problem. The data for owners who expect better business conditions over the next six months rose nine points from June’s record low to a net negative 52%.

Bill Dunkelberg, NFIB’s chief economist, noted that “The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages, and supply chain disruptions.”

Initial Jobless Claims increased again by 14,000 in the latest week, as 262,000 people filed for unemployment benefits for the first time. Continuing Claims, which measure people who continue to receive benefits after their initial claim is filed, rose by 8,000 to 1.428 million, a high not seen since the beginning of April.

The 4-week average of Initial Jobless Claims moved up once again to its highest level since late November. As we mentioned last week, the trajectory higher is likely to continue, given the announcements of significant layoffs from several public companies, meaning we will eventually see a higher unemployment rate.

Looking ahead, housing news dominates the headlines this week. Stay tuned for the breakdown of the National Association of Home Builders Housing Market Index, Housing Starts, Building Permits, and July’s Existing Home Sales.