Inflation, Inflation, Inflation. I can’t think of a more popular topic on everyone’s minds. And with last week’s Consumer Price Index (CPI) report, it was shocking reminder of how much prices have risen. For those that didn’t see the CPI report, it showed that prices for Americans rose over 9%, the highest reading in four decades. In addition, the three biggest components to CPI (housing costs, energy, and food prices) saw huge jumps.

But even after that hot June CPI report, most economists still expect inflation to cool down for the remainder of the year and into the next. So, let’s take a look at what parts of inflation are still running hot and what is cooling down.

The biggest reason for that seems to be the recent drop off in energy and food commodity prices. While energy commodities like crude oil (purple below) and gasoline (yellow) are all off their peaks, they have been falling steadily since mid-June. As a result, economists expect that lower energy prices will be better reflected in next month’s July CPI report.

The same is true with many agricultural commodities that go into food products like corn (blue below) and wheat (yellow). Wheat, in particular, is now back to pre-Ukraine war levels! While your grocery bill is probably still quite elevated, hopefully, these lower raw material prices will mean my Albertsons bill will be a little less soon.

What’s not cooling down? As you can imagine, it’s housing and rents. Antidotally, real estate prices are only starting to come down. Buyers are shocked by soaring mortgage rates, but it seems like sellers haven’t lowered their prices. This will be something close to watch since shelter-related costs are the largest part of inflation. If you were able to lock in a low fixed-rate mortgage in the last two years, consider yourself lucky.

Inflation continues to be a tricky issue for American families and Wall Street economists. Forecasting if inflation will come down has been difficult for all the Wall Street economists. While inflation has increased in recent months, American’s inflation expectations continue to trend lower. But hopefully, with lower commodity prices, American families will start to get some relief soon.

Benjamin Lau, CFA
Chief Investment Officer

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