Headline Numbers Say Inflation Has Peaked. Warning Signs Say More Is Coming
Enjoy The "Cooler" Inflation. It's Not Likely To Last
From Wednesday’s suprisingly “cool” July Consumer Price Index report, to yesterday’s cooling Producer Price Index, to yesterday’s Import and Export Price Index, the headline numbers are all saying the same thing: consumer price inflation in this country is heading down at last.
But will the downward trend last? Underneath the headline numbers there are a number of warning signs that suggest more inflation is yet to come.
Wall Street Celebrates Lowered Inflation Anyway
Staying true to its usual casino compulsive gambler nature, Wall Street looked at the headline numbers on inflation, shrugged off the warning signs, and ran the markets up to end the week on a high note, with the Dow Jones, S&P 500, and the Nasdaq all up considerably for the week.
Overall, Wall Street was pleased to celebrate the headline numbers on inflation this week and ignore everything else.
Food Price Inflation Is Still Rising
As I noted previously in discussing the July Consumer Price Index Summary, one CPI component that did not see a decrease in inflation was food. Food price inflation actually rose to the worst it’s been in decades.
It is important to note once again the distortion that inflation inflicts on an economy. Even as overall consumer price inflation dropped by 0.6%, food price inflation actually increased—to the highest level in forty years.
While it is possible that consumer price inflation overall may have peaked in June, it is certain that food price inflation did not.
Even in the Producer Price Index, food price inflation surged in July, rising at a rate not seen since the 1970s.
Prices paid to US producers for finished consumer foods jumped nearly 16% in the year through July, the biggest surge since 1974, according to Labor Department data released Thursday. A good chunk of that was due to a 44.2% rise in the cost of eggs, plus substantial increases in the prices of fresh and dry vegetables as well as beef and veal.
With both the CPI and PPI showing rising food price inflation year-on-year, it seems improbable there will be a downturn in food price inflation next month at least.
Depending on the performance of other CPI components in coming months, food price inflation may yet push overall consumer price inflation back up again.
Keep reading with a 7-day free trial
Subscribe to All Facts Matter to keep reading this post and get 7 days of free access to the full post archives.