654 viewsGregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today, we have the latest on inflation and jobless claims. Welcome to the all-good-news edition of The Line!
Inflation Lower than Expected in June
Consumer prices rose just 0.2% last month and were 3% higher than a year ago. Both these figures were lower than the Dow Jones estimates, so they are great news. You can see in the chart below that the annual rate of inflation peaked in June of 2022 at 9%, so today it’s just one-third of what it was a year ago.
The annual inflation rate hasn’t been this low since March 2021. Sweet. And since the Fed’s target for inflation is 2% annually, one can’t help but smile at this news.
Now this is where I spoil the fun a little by pointing out that "core" inflation is rising at a 4.8% annual pace. Why is it important that core inflation is rising more than the overall number? Because core inflation—which removes food and energy prices—will take longer to come down than the overall inflation number.
Energy prices are down almost 17% over the past year, a big reason why the headline number has fallen to just 3%. The drivers of core inflation—which are mostly housing rents—cannot be expected to fall that quickly in a year. That said, core inflation is rising at its lowest annual rate since October 2021, so you might not need to be so worried about it. Leave it to an economist to tell you to worry about something right before he gives you a reason not to be so worried. Nice going, Greg.
Don’t be surprised if the annual increase in the headline number goes up in the coming months due to what some are calling "technical" reasons. In plain English, since inflation was so high in June of 2022, it’s not a huge surprise it has dropped so much compared to a year ago. However, since inflation barely rose in July and August 2022, any increases in the next two months could push the annual number over 3%. This is another thing you shouldn’t worry about.
In other good inflation news, producer prices also rose less than expected in June, and they have come down much faster than consumer prices over the past few months.
The takeaway here is that inflation continues to move in the right direction, but it still needs to come down more before the Fed quits hiking rates.
Jobless Claims Unexpectedly Fall
For dessert today, we have more proof that you can’t stop the labor market these days. Initial claims for unemployment fell to 237,000 last week, much lower than the Reuters forecast of 250,000. Every time I report on how low unemployment claims are, many of you ask how that’s possible since there are so many layoff announcements each week. The easy answer is that laid off workers are finding new jobs quickly, and therefore don’t need to file a claim.
Economists say that jobless claims will have to rise above 280,000 per week before we see a significant slowdown in the labor market, so things are all good for now.
