July CPI: Is The Fight For Inflation Over?

This week, Wall Street will get another chance to determine whether the Fed's fight against inflation is over, setting the stage for ending interest rate hikes.

The U.S. Bureau of Labor Statistics (BLS) will release the July Consumer Price (CPI) and Producer Price Index (PPI).

CPI is a narrow measure of inflation. It's the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Thus, it's a good proxy for consumer or cost of living inflation and a critical variable in calculating the real value of household incomes and wealth.

PPI is a broad measure of inflation. It's the average change over time in the selling prices received by domestic producers for their products. As a result, it's a good proxy for inflation at the wholesale level and a good indicator of future consumer inflation, as it takes time for changes in wholesale prices to reach retail stores.

Both headline CPI and PPI are highly volatile, as they include food and energy, which are influenced by seasonal and geopolitical factors. That's why policymakers and Wall Street analysts pay close attention to the core CPI and PPI, which exclude food and energy from calculations.

Tradingeconomics.com expects core July CPI and core PPI to come at 4.8% and 2.4%, respectively. That would bring core PPI closer to the Fed's target of 2%, while core CPI would remain well above the Fed's target, meaning that the fight for inflation is far from over.

"While headline inflation is expected to come in 3%, all eyes will be on core inflation - expected at 4.8%," Pete Mulmat, CEO of I.G. Group, told International Business Times. "Fed Chair Powell has said that the Fed is watching core inflation closely, and he indicated that it might stay higher for longer than investors anticipate."

Mulmat doesn't think the fight against inflation is over, given the hike in July and the quote from Powell in June saying that policy "may not be restrictive enough" at the European Central Bank panel in Portugal. "Higher inflation could help price another rate hike and potentially send stocks lower," he added.

Young Pham, a financial advisor and investment analyst affiliated with BizReport, doesn't think the fight for inflation is over either.

"Although we have made quite some progress in reaching that goal over the past year, we are still at above 4%, which is essentially twice the Fed target," he told IBT. "There is, therefore, a lot that needs to be done to get that inflation at 2%."

He, too, is paying close attention to hawkish statements by Chairman Powell. "I have not seen any signs from the chair that the Fed is about to pivot in any way," he added. "We are likely to see two more rate hikes this year and a high-interest rate environment well into 2024, even if this means sending the U.S. economy into a recession."

Joe Camberato, CEO of NationalBusinessCapital, strikes an optimistic tone. He believes the fight for inflation is over - in everything but the housing market.

"The primary driving force behind it was the supply chain disruptions caused by COVID, particularly in China, where the shutdown lasted longer than in other countries," he told IBT. "Beyond that, the infusion of free money into the economy played a significant role and contributed to the inflationary pressures and supply chain delays."

He thinks that this situation has eased now. "When you place orders for goods, you'll notice that the delays we experienced 6-12-18 months ago have significantly diminished, if not completely vanished," he explained. "The current problem is the residential real estate market."