The week ahead: Investors anticipate today’s inflation as further rate hikes loom


It has been almost five months since the Federal Reserve turned all of its attention and action to fighting inflation. We can see if this has a significant effect with July inflation data coming out in the week ahead.

There are two versions of inflation figures: wholesale inflation and consumer inflation. Consumer inflation is what is getting all the attention.

In June, fueled by high gas and food prices, consumer inflation was 9.1% higher than a year earlier. It was the latest in a series of 40-year records this year. Russia’s war in Ukraine has driven up energy and food prices. And there is nothing the US Federal Reserve can do against the war, and little it can do directly to drive down food and fuel prices.

The central bank’s tool for fighting inflation is interest rates. Raising its target short-term interest rate aims to absorb money, keep it out of economic circulation and thus cool demand. Interest rates are a sponge in the economic ocean that has been inundated with pandemic money. The Fed isn’t trying so much to deplete the economy as it is to mop up liquidity. It can be a slow process.

Inflation reports for July should show that price increases are slowing. Gasoline prices have fallen. This alone will help the overall inflation number. However, core inflation (excluding food and gas) could increase slightly compared to a year ago.

Some speculators believe the central bank may slow its rapid rate hikes in the coming months. Maybe the speed can slow down, but not the direction. Several regional Fed leaders tried to stifle these talks. The Fed is “far from” done raising rates and “will continue to do what we need to do” to bring inflation down, two Feds said recently.

July’s stock market rally should not be interpreted as an indication of a slowdown in inflation this summer, or of a Federal Reserve about to reverse course. Instead, it’s a sign that investors believe these will be the conditions at the start of 2023.

Consumers buy and spend here and now. Investors are not.

While the consumer price index may not be the Fed’s preferred gauge of inflation, the continued strength of price increases in July would indicate that the central bank is far from done raising inflation. interest rate.

Tom Hudson

Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is vice president of news. He is the former co-anchor and editor of “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.


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