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Inflation Pauses in July

Aug. 10, 2022
Year-over-year, prices are up 8.5%, but no gain from June to July.

Consumer prices did not climb from June to July as falling gasoline and energy prices offset gains in food, housing and new cars. Year-over-year, prices are up 8.5%, a still remarkably high number, but July’s numbers were the first flat inflation month of the year.

Markets were up in pre-open trading on the hopes that inflation might be easing. The Federal Reserve has raised interest rates four times this year. In January, the rate offered to banks was effectively 0%, but following a 25-basis-point hike in March, 50-basis-point hike in May and 75-basis-point hikes in June and July, that rate stands a 2.25%. Even with inflation flat in July, many economists have predicted further rate hikes this year as the Fed hopes to bring inflation down to about 2% in the long term.

The Consumer Prices Index is a closely watched measure of inflation as it directly influences interest rates, a key factor in funding capital expenditures for most manufacturers. As inflation has soared in the past year, the economic impact on the manufacturing sector has been wildly mixed.

Machine tool orders have been down for three consecutive months, AMT—The Association for Manufacturing Technology, has reported. However, manufacturing technology suppliers such as Illinois Tool Works, Ingersoll-Rand and Key Tronic Corp. have reported record July results, saying many companies continue to invest in U.S. capacity to protect supply chains against disruptions from Asia.

In announcing fiscal 2022 earnings Tuesday, contract manufacturer Key Tronic President and CEO Craig Gates said that, “Global logistics problems and heightened assurance of supply concerns continue to drive the favorable trend of contract manufacturing returning to North America.”

And, while July offered a reprieve from continued price hikes, the news from the CPI was also mixed. Almost all of the inflation mitigation came from falling gasoline prices. Core inflation, a measure that removed volatile energy and food prices, was up 0.3% in July and is up 5.9% compared to last year, the same increase as in June.

“The shelter index rose 5.7% over the last year, accounting for about 40% of the total increase in all items less food and energy,” U.S. Bureau of Labor Statistics economist said in the data release. “Several transportation indexes also rose notably over the last year, including new vehicles (10.4%), used cars and trucks (6.6%), motor vehicle insurance (7.4%) and airline fares (27.7%).”

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