Last week data on two important indicators confirmed long-held beliefs that we have repeatedly asserted throughout the year. First, inflation readings through August continued to moderate, supporting our view that inflation would decelerate this year, even as it remained above levels from the last business cycle. Second, consumers spent at a healthy pace during August, supporting our view that consumers would remain resilient throughout 2021 and that nominal advance retail sales would set a calendar-year growth record this year. And while those two things might superficially seem contradictory, they hold with our view of an economy that is gradually managing its way through the release of pent-up demand and supply-side disruptions.

Inflation Decelerating

We have consistently held the view that inflation would subside, not rise to levels like those from the 1970s, but rather settle into a range above that from the last business cycle. Through August we see little if any reason to alter that outlook. In August the headline consumer price index (CPI) increased by 0.3% – robust, but below expectations and well below the rate from recent months. Meanwhile, the core CPI grew by only 0.1%, meaningfully below expectations and the lowest reading since February. Why is inflation starting to ease when many thought it would remain elevated? Three key reasons:

Pent-up demand has eased over time and is subsiding as it does, returning spending to healthy but more normalized levels. Even high prices themselves are helping this process by dissuading some consumers from purchasing goods and services at elevated prices. Click to read more at www.am.jll.com.