A “Quick And Dirty” Look At Anticipated Consumer Inflation In July

Tomorrow we’ll get the CPI report for July. At first I thought this might resume the upward spike of April and May — but maybe not.

My “quick and dirty” way to create a back of the envelope estimate of consumer inflation is to divide the change in gas prices (conservatively) by 16, and then add 0.15% for underlying upward pressure in non-energy areas. What is somewhat surprising is that, on average, gas prices declined -2.9% in July, from $4.05 to $3.93/gallon. Dividing by 16 gives us a decline of 0.2%, so if we add 0.15% to that, we get a change in CPI of between 0 and -0.1% (red in the graph below), compared with actual inflation through June (blue):

The Cleveland Fed, which has an inflation nowcast, is also expecting somewhat subdued inflation, at a 0.2% monthly increase:

This translates into a 3.5% YoY increase:

Which, following up my post yesterday, would at least be less bad for real nonsupervisory payrolls, which would decline -0.1% for the month, but remain higher by 4.1% YoY, and so even if contracting from their peak at the beginning of this year would not be signaling any imminent recession.