It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines…
Wholesale Prices Remain Unchanged
On Thursday, the Labor Department announced that its Producer Price Index (PPI) was unchanged in July. This was significantly below economists’ consensus estimate of a 0.2% increase. Wholesale electricity prices declined 1.6% in July, causing overall energy prices to decline 1.3%. Furthermore, falling wholesale meat prices caused a 0.9% decline in overall food prices. Excluding food, energy and trade margins, the core PPI rose 0.3% in July. Overall, the July PPI was positive, but not enough for the Fed to change its interest rate policy.
Housing Costs Drive Consumer Inflation
On Friday, the Labor Department announced that its Consumer Price Index (CPI) rose 0.2% in July. This was in line with the consensus estimate. Excluding food and energy, the core CPI rose 0.2% in July. Over the past 12 months, the core CPI has risen 2.4%.
Digging into the details, food prices rose 0.1% in July, while energy costs declined by 0.5%. Shelter costs rose 0.3%. Higher housing and rental costs seem to be the primary catalyst behind consumer inflation. Since housing is very interest rate sensitive, the Fed’s recent interest rate hikes are expected to help temper home prices. So, inflation is expected to moderate in the upcoming months.
The Bottom Line for the Fed
I suspect that the Fed will raise key interest rates by 0.25% at its next Federal Open Market Committee (FOMC) meeting in September. A modest increase would allow the Fed to get in line with market rates.
However, beyond September, further key interest rate increases are very uncertain. The last thing the Fed wants to do is invert the yield curve. So, I am expecting a relatively dovish FOMC statement in September, which may ignite a stock market rally.
That’s all I have for you this week. I’ll be in touch again next week with the latest ratings out of Portfolio Grader.
Until next week,