It’s hard to talk about the economy without interference from political punditry and suspicion. But a wave of economic news has poured in recently that suggests inflation may finally be breaking much like the summertime heatwave.
The Consumer Price Index in July increased 2.9% from a year earlier, marking the lowest spike in nearly three and a half years, per the U.S. Bureau of Labor Statistics.
Even more significantly, core CPI, excluding food and energy, jumped by only 0.2% over June, and even the monthly rise of food prices climbed a modest 0.2%, CNBC reported.
One remaining albatross undercutting more hopeful prospects is housing (rents and mortgages), which jumped 0.4% from June to July, perpetuating national highs on median housing and rental properties.
Moody’s Chief Economist Mark Zandi said that perhaps the most important news for consumers from the recent spate of economic data is that inflation for groceries “continues to grow very slowly.”
Combined with similar good news for other necessities like gasoline, Zandi added, “that’s really encouraging news, particularly for the lower income consumers that are the most hard-pressed.”
But as my colleague, Techonomic Principal Donna Hood Crecca, and I recently shared before a group of roughly 30 operators, it will be months if not at least a year before sustained economic news will translate into prolonged consumer confidence, which over the past 24 months has remained cautious.
While GDP is surging 2.8% in the second quarter—easily outpacing the EU, China and Japan—there is a concern that’s receiving far too little attention: household debt.
Americans saw household debt eke up from first-quarter 2024 to second quarter, hitting a resounding $17.8 trillion. And mortgage originations remained low, largely due to sluggish refinance activity, according to the recently released report from the Federal Reserve Bank of New York.
The Big Meaning?
Why am I writing this? And why should you care?
Because if the tealeaves are correct, we may see a shift in consumer behavior and economic activity by early to mid-2025. If grocery and gasoline prices remain stable for the next several months, consumers may accept the fact that prices will never return to 2019-20 levels, but they will feel more assured that the worst is over.
For retailers, this means a fresh opportunity to revitalize in-store traffic, which is down between 1.5% and 2.5%, based on dozens of conversations I’ve had with operators in recent months. It means that barring any major setbacks, we may see greater stickiness in consumer confidence, which will yield increased spending.
On inventory, cresting inflation will mean greater price stability of goods and the flexibility to promote more effectively without feeling the burn of an unexpected wholesale uptick.
In short, people—both consumers and operators—crave price predictability not daily sticker shock. And the signs show we are closer now than at any point in the post-COVID era.
Mitch Morrison is vice president of retailer relations at Informa Connect. Reach him at mitch.morrison@informa.com.