Issue 24 – The Storming of the Bastille Day or The Dog Days of Summer

Year over year, consumer inflation fell to 3.0% in June, a remarkable year-long fall of 600 bps versus a 500 bps increase in the Fed’s policy rate, with further declines in view. The New York Fed’s June monthly Survey of Consumer Expectations showed that respondents had predicted that inflation would continue to decline for the next 12 months. Moreover, the net share of small-business owners who had raised average selling prices over the past 3 months fell to 25% in June from 65% last March, while core inflation, which excludes food and energy, was also notable, rising 4.8% – way below expectations, even though shelter prices have not yet shown any signs of easing, and rising as much as 0.5% m/m in June. However, private data suggests that upward pressure is subdued. The price increase for new leases has fallen faster than average rent, which will contribute to reduce core inflation in the future. Another precursor of consumer inflation is the producer price index. The BLS hailed more evidence that inflation moderation is no head fake this time. Wholesale prices, a reliable forerunner of consumer prices, rose just 0.1% in June and likewise year-over-year.

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By Hubert Marleau

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