PRISM Economic Report: PPI and CPI Inflationary Indicators Slowing as Investors Await July Retail Sales on Thursday

This week market participants awaited inflationary indicator readings as Producer Price Index (PPI) and Consumer Price Index (CPI) reports were set to be released.

Yesterday’s PPI report was released which measures inflation at the wholesale level and averages the change in prices domestic producers receive for their output. July’s PPI reading showed an increase of 0.1% which was less than expected (0.2%).  Headline PPI has advanced to 2.2% year over year posting a sharp drop from its 2.7% reading in June.

Today the CPI reading was announced which measures the monthly change in prices paid by US consumers by taking the weighted average of prices for a basket of goods and services that is representative of aggregate US consumer spending. The CPI hit an inflation milestone slowing below 3% for the first time since March 2021. The annual reading showed a 2.9% consumer price increase while on a monthly basis July’s reading was an increase of 0.2%. Consensus estimated an annual 3% rise and monthly increase of 0.2%.

These two reports continue to build a case that tees up the Fed for rate cuts at the next FOMC meeting in September. Tomorrow’s July retail sales will give further insight into the health of the consumer. The Street is looking for a 0.4% m/m increase in July headline retail sales. Last month’s June reading was flat and better than expected. With more retail earnings picking up in the next few weeks, some recent earnings reports have cited heightened pressure on lower-income consumers, continued softness in big-ticket and discretionary spending, trade-downs and some spillover to travel/lodging. However, there has been some pushback against this as fairly healthy consumer balance sheets are continuing to be flagged by some. Tomorrow should provide some further clarity on where the personal financial health of the consumer stands.