The White House is bracing for another hot inflation report on Wednesday as it already looks ahead to the July consumer price index (CPI).
Markets are expecting that the U.S. annual inflation report for June will come in at 8.8 percent, up from 8.6 percent in May. On a monthly basis, the CPI is poised to edge up by 1.1 percent. The core inflation rate, which removes the volatile food and energy sectors, is anticipated to ease to 5.7 percent.
According to an administration memo, authored by National Economic Council (NEC) director Brian Deese and Council of Economic Advisors (CEA) chair Cecilia Rouse, the effects of soaring energy and food costs on the headline CPI figure in June will reach 40 percent. This, the memo states, has been largely driven by Russia’s war in Ukraine.
But U.S. officials note that the June CPI is a lagging indicator since it does not consist of the drop in crude oil and gas prices.
"Energy prices have fallen significantly from the prices included in the June CPI report, and are expected to fall further," the memo stated. "The June CPI data will largely not reflect the substantial declines in gas prices we’ve seen since the middle of June."
No Recession SignsWith growing concerns about a recession, the White House noted that the latest economic data, including the better-than-expected June jobs report, "are not consistent with a recession in the first or second quarter." Officials added that the nation's labor market is strong enough that it can allow the economy to shift into a phase of lower inflation and steady growth.
At the same time, Deese and Rouse conceded that the United States would transition to a period of slower economic growth and lower job creation.
But multiple measures can be employed to accelerate price stability efforts and ensure the U.S. economy can continue to grow, including passing "legislation that lowers costs for families" and reducing the federal budget deficit, the White House averred.
Speaking to reporters on Monday, White House press secretary Karine Jean-Pierre said that June inflation rate is expected “to be highly elevated” but she also downplayed the data, explaining that it is "out of date" and "backwards-looking."
While the administration is optimistic about surging prices, consumers' inflation expectations over the next year hit record highs.
In addition, the mean probability that the unemployment rate will be higher next year climbed to 40.4 percent. This is the highest level since April 2020.
Yardeni Research agrees that inflationary pressures might ease next month as the commodities market, from agriculture to energy, is "showing significant declines so far during July."
In a research note on Tuesday, Deutsche Bank analysts purport that inflation is largely a demand-driven event.
"Over the last year, we have seen a clear mix-shift in terms of the drivers of inflation. In terms of the latest year-over-year rate, about 1/3 of both headline and core PCE [personal consumption expenditure] inflation can be attributed to supply side inflation versus the remaining 2/3 coming from demand driven components," the bank wrote.