When the latest data on consumer prices in the United States landed Wednesday, the headline number was ugly.

Inflation surged to 9.1% in June, according to data from the Bureau of Labor Statistics. That was higher than economists polled by Refinitiv were forecasting.
It was also much higher than the 8.6% rate logged in May, which rattled financial markets and pushed the Federal Reserve to hike interest rates more aggressively — renewing fears about whether the central bank could tame inflation without triggering a recession.
Investors were bracing for a surprise. But there’s reason to believe that Wall Street’s response to the numbers will be more muted than it was last month.
“Both policymakers and investors will take this new high in stride,” Joseph Brusuelas, chief economist at RSM US, told me.
Why? Digging deeper into the data on inflation reveals that while the situation is worrying, there are some reasons for optimism.
1. Core inflation. Annual core inflation, which strips out volatile food and energy prices, appears to have peaked in March. Federal Reserve officials are most concerned when there are signs inflation is broad-based, so this provides some hope the underlying situation is improving even as grocery and gas prices go haywire.
Core inflation in the 12 months to June edged down to 5.9% from 6% in May. It could keep dropping should consumer demand for goods continue to soften, as shoppers balk at high prices and redirect their income towards services like dining out.
2. Oil prices. Concerns about whether the global economy could tip into a recession have dimmed expectations for fuel demand, helping relieve pressure on gasoline prices in the United States this month. The average price for a gallon of regular gas on Wednesday was $4.63, compared to $4.78 a week ago and $5.01 one month ago.
That wasn’t reflected in the June data, given that gasoline prices were at a record high when the Bureau of Labor Statistics crunched the CPI numbers. The gasoline index rose 11.2% between May and June.
But it does mean July will probably look better — and markets like to look ahead.
3. Long-term inflation expectations. A survey from the Federal Reserve Bank of New York published this week showed that while consumer inflation expectations for the next year marked a new high in June, expectations for the medium and long term declined.
This indicates that American consumers still have faith that the Fed can get the inflation situation under control by hiking interest rates and ending crisis-era bond purchases. The economy might slow, but price stability will ultimately be restored, as will the much-maligned credibility of central banks.
That said: Core inflation is still extremely high and well above the central bank’s target of near 2%. And there are signs that inflation pressures are spreading to parts of the economy where they’re likely to stick around for some time, like housing and rent.
The shelter index climbed 5.6% over the last year. That was the biggest increase since February 1991. The price of household furnishings jumped 9.5% during the same period, while airline fares leaped more than 34%.
Looking ahead: Once inflation starts to come down, will it ever get back to where it was before the pandemic hit?
Top officials, including Federal Reserve Chair Jerome Powell and Agustín Carstens, who heads up the Bank for International Settlements, acknowledged at a summit in Portugal late last month that there’s a risk we could enter a period of persistently higher inflation if central banks don’t get the situation under control soon.
“The biggest question, I think, is are we in transition from a low inflation regime to a high inflation regime?” Brusuelas said.
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