The Bureau of Economic Analysis (BEA) released its report on Personal Income and Outlays for July 2022 today. The report gives an updated view of income and inflation in the economy. The report details how personal income, expenditures, and prices evolve each month. On the income side, the BEA found that real disposable personal income increased by 0.3 percent in July, mostly from increased compensation to workers during the month. Additionally, real personal consumption expenditures (PCE) increased by 0.2 percent. These modest increases are consistent with continued economic growth after the pandemic recession.
The report also has good news on the inflation front. Headline PCE inflation for July was -0.1 percent, indicating that overall prices declined during the month. This brought the full measure of inflation over the past year down to 6.3 percent (from 6.8 percent last month). Since much of the price decline in July was due to falling food and energy prices, it is helpful to look at core-PCE inflation that excludes food and energy. This inflation measure increased modestly at 0.1 percent in July – a pace consistent with about 1% annual inflation. Annual core inflation declined to 4.6 percent in July.
While the inflation over the past year is still much higher than the Federal Reserve Bank’s 2% target, this report provides more evidence that inflation may have peaked after the CPI also showed no inflation in July. Additionally, container shipping rates are declining, which may signal that parts of the supply chain are returning to normal. While inflation may have peaked, there is still a long path to bring inflation back down to 2%. While a potential risk going forward is that food and energy prices could begin to climb heading into winter, the economic reports over the past month show that prices have started to stabilize after rising rapidly over the previous year.
