According to economists, consumer inflation for July is expected to be the highest ever since the pandemic started, indicating that the harsh increase in consumer prices has stretched to the peak.
Consumer Inflation To Peak
As reported by CNBC, the consumer price index for July is expected to increase by 0.5% “or a gain of 5.3% year over year, according to Dow Jones.” CPI saw a 0.9% rise in June or 5.4% YoY, the greatest monthly rise since August 2008.
“Excluding energy and food, economists expect CPI rose by 0.4% last month, compared with the 0.9% increase in core in June. On a year-over-year basis, June’s core CPI of 4.5% was the highest since September 1991.”
Mark Zandi, chief economist at Moody’s Analytics, told CNBC that “It will be another very hot number with the fingerprints of the pandemic all over it.”
“I think the last of the effects of the reopening will be in this month ... I think it’s going to be a peak in the year over year, if not July, then it was June,” he said. “We’re there. We’re peaking.”
The rising prices of lodging and airline tickets are expected to continue, as they are rubrics that saw a demand surge once the economy resumed.
If consumer inflation beats analysts' estimates on Wednesday, stocks could be affected as bond yields would go higher.
Inflation and Bond-Buying Program
Consumer inflation in July is set to be critical and it is not clear whether it is a transitory or a structural phenomenon.
Economist Jan Hatzius said, “I think it slows sequentially. Year over year I think it’s going to stay high, until we cycle through these big sequential increases in the spring of next year.”
“Sequentially, I think we’ll see a sharp slowdown post the August report.”
Its evolution could slightly mitigate the hawkish tone of the latest statements by Fed members, such as Rosengren, Bostic, or Mester.
The latter warned about the consumer inflation dynamics and the possibility of higher prices with the reopening, due to the interruptions in the supply chain. This could lead, he said, to a continuous increase in inflation.
However, analysts consulted by CNBC asserted that the report is not expected to have much impact on the Fed’s plan to taper the $120 billion a month bond-buying program to support the economy during COVID-19.