Recent market news has forecasted a slow month for August, suggesting a small decline in the market in the next 30 days. However, through the end of the year, financial experts across the board see strong growth in the market, in particular for the S&P 500, throughout the rest of 2018. Despite these forecasted predictions, the ability of the consumer to buy goods and services in the US is seeing some negative numbers surrounding inflation. Specifically, in June of this year, the rate of consumer inflation rose to its highest since 2012.
Looking at the numbers from June, figures indicate that the consumer price index increased at a rate of 0.1% in June versus the expected increase of 0.2%. The increase in the cost of living hit a 12-month pace at 2.9%, an increase of 1.3% from the same number last year. In addition, the core CPI, the consumer price inflation rate, which does not account for food and energy, increased by 0.2% in June. The monthly increase sets the core rate at 2.3%; since the Great Recession, the core CPI has not exceeded the 2.3% mark.
In addition to these core numbers, the price increases and decreases of products and services have been analyzed in recent reports. In June, the cost of gasoline rose while the cost of both electricity and natural gas fell abruptly. Food costs increased by 0.2%, helping to offset the substantial monthly decline in energy prices. The cost of rent, medical care, and used and new cars also continued to increase, further pushing the index up. On the opposite end of the spectrum, prices for airline and clothing saw a slight decrease.
With all of that information, what do these inflation numbers really mean? In recent months, many employees have seen wage increases as a result of the tax cuts given to business under new legislation from the Trump administration. In turn, the increase in consumer inflation has served to essentially cancel out these wage increases. Higher consumer inflation has also put pressure on the Federal Reserve. Currently, the Fed expected inflation to level off soon, but if consumer inflation continues, it will likely have to increase the number of interest rate hikes for the remainder of the year.
Beyond these effects, the result of Thursday’s CPI data will also temporarily draw attention away from the ongoing trade war that has dominated financial headlines for weeks. While the increase in consumer inflation has hit all-time highs, over the past few months it has obviously contributed to overall inflation as measured by the Fed. The Federal Reserve uses the core PCE deflator to measure inflation and as of May, the metric finally hit its target of 2%. At this point, the Fed is no longer concerned with inflation with being too low but is hoping that inflation can sustain at the current level. Fundamentally, the current inflation level would not be benefited by a continued increase in consumer price inflation.
