New Data Hints At Peaking US Inflation Trend

Yesterday’s July report on US consumer inflation suggested that the recent surge in pricing pressure may be peaking. That’s also the message in revised data for’s Inflation Trend Index (ITI).

Let’s start with the official numbers from the US Bureau of Labor Statistics, which reports that the monthly rise in the Consumer Price Index (CPI) slowed to 0.5% in July from 0.9% at the headline level. That’s still a strong gain, which translates to a 5.4% year-over-year increase and so it’s fair to say that inflation continues to run at substantially higher pace relative to recent history.

But there are also clues for thinking that the latest surge is peaking. For starters, CPI’s headline rate held steady at 5.4% — the first time the annual rate was unchanged in six months.

Meantime, core CPI, which removes volatile energy and food prices and is therefore a more reliable measure of the trend, decelerated to a 4.3% year-on-year gain. That’s the first softer print in five months.

One month could be noise, of course, and so it’s premature to read too much into the July numbers. As a result, the August inflation report (due early next month) will be widely read for stronger confirmation (or rejection) of the peaking narrative.

The Capital Spectator’s Inflation Trend Index, however, continues to reflect a case that the recent pricing runup has peaked, or is peaking. That was the analysis a few weeks ago and it remains intact in today’s update. ITI is a proprietary benchmark that’s designed to provide a degree of forward guidance on the directional bias of pricing activity in real time. ITI is not a proxy for estimating the government’s inflation measure; rather, it’s an eight-factor measure of how inflationary pressures are trending and whether a change in the trend appears likely or not.

Revised data show ITI unchanged at 5.0% for the estimated August trend. The no-change print for this month marks the first time since November that ITI didn’t rise.

Reviewing monthly changes for ITI highlights what appears to be break in the recent upside bias.

For another perspective, let’s forecast ITI for September via The Capital Spectator’s combination forecasting model, which uses the average of eight models to estimate the future – in this case next month’s ITI data point. On this basis, it appears that ITI is peaking/holding steady in July and August and will edge lower in September. The forecast comes with a non-trivial amount of uncertainty, of course – like every forecast. But for now, there’s ongoing support for thinking that this year’s inflation surge may be fading, if only modestly.

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