{"id":12570,"date":"2023-07-20T09:31:12","date_gmt":"2023-07-20T09:31:12","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12570"},"modified":"2023-07-20T09:31:12","modified_gmt":"2023-07-20T09:31:12","slug":"will-inflation-keep-falling-mitch-offers-his-thoughts","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-inflation-keep-falling-mitch-offers-his-thoughts\/","title":{"rendered":"Will Inflation Keep Falling? Mitch Offers His Thoughts"},"content":{"rendered":"\n<p><em>Marcia G. from Tacoma, WA asks: <\/em>Hi Mitch, I saw that the latest inflation numbers were a great improvement, and the stock market keeps going up. I\u2019m writing to ask if you think this will continue. I know the market will go up and down over time, so my question is focused on inflation. Does it keep getting better from here? Thank you.<\/p>\n\n\n\n<p><strong>Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n<p>Thanks for writing &#8211; you\u2019re right to point out improving inflation data. Year-over-year changes in the consumer price index peaked at 9.1% last June, falling to 4% in May and now 3% in June. That\u2019s a solid downtrend, in my view, and I see a possibility that pressures could ease further in the second half of the year.<sup>1<\/sup><\/p>\n\n\n\n<p>But it may not happen immediately. One factor to consider is that June 2023\u2019s inflation print is a year-over-year comparison to the inflation peak in June 2022, so the comparisons will become harder from here. I also think it\u2019s important to focus on Core CPI, not the headline figure when wrapping your head around where the U.S. and the Fed are in the inflation battle.<sup>2<\/sup><\/p>\n\n\n\n<p><strong><u><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-inflation-guide?source=zim&amp;medium=blog&amp;term=mitchsmailbox_inflation_guide_zim_07_20_2023&amp;content=inflation_guide\">Looking to Protect Your Retirement from Inflation?<\/a><\/sup><\/u><\/strong><\/p>\n\n\n\n<p>While inflation\u2019s unpredictable nature can impose significant costs on the economy, what can investors, especially those nearing retirement, do to keep their investments afloat?<\/p>\n\n\n\n<p>Instead of letting the pressures of inflation cause you to worry, I recommend that you take a look at steps that could help reduce the sting of it. To help, we\u2019re offering our exclusive guide, <strong><em>4 Ways to Protect Your Retirement from Rising Inflation<sup>3<\/sup><\/em><\/strong><em>. <\/em>You will get insight on:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>How to build or modify your asset allocation to outperform inflation<\/li>\n\n\n\n<li>The importance of analyzing your spending by category<\/li>\n\n\n\n<li>Strategies to maximize Social Security retirement benefits<\/li>\n\n\n\n<li><strong>Plus, more practical ideas to fight back against inflation<\/strong><\/li>\n<\/ul>\n\n\n\n<p>If you have $500,000 or more to invest, get our free guide today! Download <strong><em><a href=\"https:\/\/go.steadyinvestor.com\/arrow-inflation-guide?source=zim&amp;medium=blog&amp;term=mitchsmailbox_inflation_guide_zim_07_20_2023&amp;content=inflation_guide\">4 Ways to Protect Your Retirement from Rising Inflation<sup>3<\/sup><\/a><\/em><\/strong><em>.<\/em><\/p>\n\n\n\n<p>Doing so paints a slightly less rosy picture. Core CPI, which strips out volatile food and energy categories, rose by 4.8% year-over-year in June, which also registered as a solid improvement from May\u2019s 5.3% print but reveals a much greater distance to the Fed\u2019s 2% target. Core CPI matters more to the Fed since they view food and energy contributions as highly volatile and also because they view the core measure as a better predictor of future inflation. As seen in the chart below, for instance, Energy was an outsized driver of the 3% headline figure, which could change considerably from month to month.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"704\" height=\"501\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic1-6.png\" alt=\"\" class=\"wp-image-12571\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic1-6.png 704w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic1-6-300x213.png 300w\" sizes=\"auto, (max-width: 704px) 100vw, 704px\" \/><\/figure>\n\n\n\n<p><strong><em>Source: U.S. Labor Department<sup>4<\/sup><\/em><\/strong><\/p>\n\n\n\n<p>Because of the June 2022 to June 2023 comparison, I would not be surprised if the July inflation reading is slightly higher than June\u2019s. I wouldn\u2019t take that as a signal that inflation is back on the move. Underlying inflation pressures have been falling, and I think will continue to do so. If I had to cite three factors that will drive inflation lower in the coming months and quarters, I would look at producer prices, M2 and M4 money supply, and owner\u2019s equivalent rents. All of these measures should contribute to further downward pressure from here.&nbsp;<\/p>\n\n\n\n<p>Specifically, the \u2018shelter component\u2019 of CPI is about one-third of the index reading. One feature is a quirky component called owner\u2019s equivalent rent (OER). This component is what homeowners would hypothetically pay to rent their own houses, and it continues to place upward pressure on the headline figure as seen in the chart below:<\/p>\n\n\n\n<p><strong><em>The Shelter Component of CPI (purple line) Lags the Headline CPI figure (red line)<\/em><\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"676\" height=\"299\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic2-3.png\" alt=\"\" class=\"wp-image-12572\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic2-3.png 676w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic2-3-300x133.png 300w\" sizes=\"auto, (max-width: 676px) 100vw, 676px\" \/><\/figure>\n\n\n\n<p><strong><em>Source: U.S. Labor Department<sup>5<\/sup><\/em><\/strong><strong><em><sup><\/sup><\/em><\/strong><\/p>\n\n\n\n<p>Data on home prices and rents suggest this pressure is going to fade significantly in the coming months, which should only pull the Core figure even lower. As far as reaching the Fed\u2019s 2% target, I\u2019m not sure that\u2019s in the cards for 2023. But I also do not think we need a recession to get there. I would argue that inflation can gradually scale lower with below-trend growth, which is what the U.S. economy has been producing in 2023. An economic \u201csoft-landing\u201d is looking increasingly likely.<\/p>\n\n\n\n<p>In the meantime, I recommend taking steps to prevent inflation from affecting your long-term investments. To help you, I am offering our exclusive guide, <strong><em><a href=\"https:\/\/go.steadyinvestor.com\/arrow-inflation-guide?source=zim&amp;medium=blog&amp;term=mitchsmailbox_inflation_guide_zim_07_20_2023&amp;content=inflation_guide\">4 Ways to Protect Your Retirement from Rising Inflation<sup>6<\/sup><\/a><\/em><\/strong><em>. <\/em>You will get insight on:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>How to build or modify your asset allocation to outperform inflation<\/li>\n\n\n\n<li>The importance of analyzing your spending by category<\/li>\n\n\n\n<li>Strategies to maximize Social Security retirement benefits<\/li>\n\n\n\n<li><strong>Plus, more practical ideas to fight back against inflation<\/strong><\/li>\n<\/ul>\n\n\n\n<p>If you have $500,000 or more to invest, get our free guide today!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>While inflation has come down significantly, Core CPI rose slightly in June. Will inflation improve in the months ahead or reverse course?<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-12570","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12570","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12570"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12570\/revisions"}],"predecessor-version":[{"id":12574,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12570\/revisions\/12574"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12570"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12570"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12570"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}