Pollack: Inflation: How bad is it?

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Co | Rose Law Group Reporter

We could tell the latest inflation report was going to be bad when the White House started playing defense two full days before the release. Sure enough. Despite preliminary efforts by the Fed to address inflation, the latest report showed inflation once again increased to levels not seen since the early 1980’s. Many observers anticipated that April would be the peak, at 8.3%. Instead, May’s increase of 8.6% and June’s increase of 9.1% have proven we’re not there yet.

As usual, the latest inflation results were driven by large increases in the prices of energy, shelter, and groceries. Thankfully, gas prices appear to have peaked in June and are now trending lower and are not reflected in the data yet. Energy prices were reported at nearly 42% higher and food prices are still over 10% higher year over year.

Unfortunately, the Greater Phoenix Metro is experiencing even higher rates of inflation, with the latest reading of 12.3% among the highest in the country. The main culprit here is housing, or rather the lack of it. Ownership and renter costs have increased dramatically over the last 12-24 months, much more so than the U.S. average.

We expect the Fed will use this data to justify continued increases to the Fed Funds rate which will create higher borrowing costs in an attempt to cool the economy further. That will be confirmed by the middle of next week after the July meeting.

Despite messaging efforts touting the continued decline in gas prices over the last month, the failure to curb inflation has decreased forecasts for economic growth over the next 18 months and increased expectations for potential recession over the next 12 months. Retail sales still grew in the U.S. in June and there was a small improvement in the latest Consumer Sentiment survey, but the combination of persistent high inflation and higher borrowing costs are likely to start showing up in the form of delayed purchases. Time will tell.

U.S. Snapshot:

  • Inflation continued to surge as the price of gas and food forced consumers to dig deeper into their pockets. June’s increase of 9.1% for all items was much higher than expected and remained at levels not seen since the early 1980s. The less volatile measure of “All items less food and energy” increased 5.9% down from 6.0%. The price increases will continue to force the Fed to increase rates in an effort to tamper down inflation.
  • The Blue Chip Panel released their July forecast with severe downgrades to their 2022 and 2023 GDP forecasts due to high inflation. The panel forecasts 2% growth in 2022 and 1.1% in 2023. Recession probability increased but remained below 50% suggesting a slowdown but escaping an outright decline.
  • Retail sales grew by 1.0% in June. The increases were in goods (gasoline, groceries and furniture) that saw a price surge in June. Consumers have been able to maintain their spending levels thus far. But, as inflationary pressures and fears of a recession continue, consumers will adjust or even postpone larger purchases.
  • Industrial production and capacity utilization but fell in June 0.2% and 0.4, respectively in June. Industrial production level of 104.4 was 4.2% above last year’s while Capacity utilization up 3.1% for the same time period.
  • The Consumer Sentiment had a very slight improvement (50% to 51.1%) in July’s preliminary findings. The improvement in gas prices was not enough to offset inflationary pressure on consumers living standards.

Arizona Snapshot:

  • Inflation in Greater Phoenix outpaced the price increases seen across the country with a 12.3% (U.S. 9.1%) increase in all items. All items less energy increased at 10.2%, much higher than the 5.9% experience across the country.
  • Taxable sales declined 6.8% in Arizona in May for the month. Maricopa saw a bigger decline of 7.8% for the same time period. Total sales were up 4.5% for the state and 5.1% in Maricopa County.
Share this!

Additional Articles

Get Our Twice Weekly Newsletter!

* indicates required

Rose Law Group pc values “outrageous client service.” We pride ourselves on hyper-responsiveness to our clients’ needs and an extraordinary record of success in achieving our clients’ goals. We know we get results and our list of outstanding clients speaks to the quality of our work.

News Categories