Is inflation finally perking up? Reports this week offer clues
A light week of economic reports features the latest reading on inflation, which is getting attention because it has been persistently weak in recent months. If wage and price increases don’t pick up within a few months, the Federal Reserve may put off an anticipated interest rate hike later this year. Also on tap are reports on consumer credit and labor market dynamics.
Consumer credit has been growing at a healthy pace, led by an 8.7% annualized jump in revolving credit — mostly credit card use — in May. That’s a good sign because it means job and income gains are making consumers confident enough to buy things on credit after hunkering down following the recession. At the same time, increases in nonrevolving credit, largely outstanding auto and student loans, have slowed recently, possibly because of modestly tighter lender standards, Nomura economist Lewis Alexander says. After total consumer credit rose a robust $18.4 billion in May, economists expect the Federal Reserve to announce Monday another solid $16 billion increase for June.
Employment has surged the past couple of months, but what’s behind the gains? Are employers adding more workers or simply laying off fewer? The Labor Department’s Job Openings and Labor Turnover Survey for June, out Tuesday, should provide some answers. In May, hires increased by 429,000 to 5.5 million, the most since December 2015. Meanwhile, job openings fell to 5.7 million after nearing an alltime high of 6 million in April. Hires are lagging openings because the 4.3% unemployment rate is making it harder for employers to find workers. Meanwhile, quits, which reflect a vibrant labor market in which employees are emboldened to switch jobs, reached a 16-year high of 3.2 million in May.
Inflation has retreated sharply after hitting 2.8% annually in February. In June, the consumer price index was up just 1.6% from a year earlier. While falling gasoline prices were a factor, “core prices” that exclude volatile food and energy costs were up just 1.7%, down from 2.3% early in the year. Economists largely blame some quirky drops in prices for items such as cellphone service, hotels and physicians’ services — declines that are expected to gradually reverse starting in July. Economists expect the Labor Department to report Friday that overall inflation rose 0.2% in July, which would be the largest increase since April, pushing the annual gain to 1.8% from 1.6%.