Will Inflation’s Cooling Pace Heat Up Consumer Spending as Summer Wanes?

The torrid pace of inflation is torrid no longer. At least judging by the data for June.

The question remains, however, whether the fact that prices are rising at the slowest pace in more than two years will spur consumers to feel better about their financial firepower.

And to keep spending, of course.

To that end, the Consumer Price Index, as released Wednesday (July 12) by the Bureau of Labor Statistics, show that prices were up 3% overall last month, measured annually, and a notable deceleration from the 4% seen in May and the peak of 9% seen roughly a year ago.

There will of course be much speculation about whether and when the Federal Reserve might keep raising rates, possibly as soon as this month. And it should be noted that the 3% pace is still above the 2% stated inflation target set forth by the Fed.

Key Categories See Some Relief

But digging into the data, we see that several key metrics have shown evidence of relief — especially among the staples that keep us going. Those staples include food, where prices were flat in June for food consumed at home (read: groceries) compared to May. The BLS said that only two of the six major grocery store food group indexes increased over the month prior. Fruits and vegetables increased 0.8% in June, while cereals and bakery products index rose by 0.1%.

The cost of keeping clothes on our backs, as documented in the “Apparel” designation, was 0.3% higher in June vs. May, a measured pace that has been seen over the last several months. And the cost of shelter was up 0.4% in June when measured against May’s levels.

Interestingly, the cost of getting around — to jobs, and to the store — has actually improved and even declined, at least in some select areas. Prices for new vehicles were flat, prices for used cars and trucks slipped by 0.5% (and are down 5% though the past year). Gas was up 1% in June, but is down nearly 27% through the past 12 months.

Taken altogether, the data suggest a breather from paying for the basic hierarchy of needs, as we delineated here, which have traditionally taken up roughly a quarter of take-home pay.

Summer has got only slightly more than a month to go — and as inflation cools, it may be the case that we’ll see a snapback in spending right as some retailers seek to clear inventory as we head into the fall and the holiday shopping season.

But might there be some flies in the ointment? As reported here, a majority of consumers are concerned about their student loan repayments resuming (after the Supreme Court struck down the Biden administration’s plan to forgive hundreds of billions of dollars in debt), which could shave single-digit percentage points off of discretionary spending power for most demographics.