Personal Income Plusses for July: Turning Point or Just a Pause on Inflation?

By SBE Council at 26 August, 2022, 1:48 pm

by Raymond J. Keating –

Given that the Consumer Price Index report had shown that CPI inflation was flat in July, it was expected that the July personal income report would offer a breather from bad news related to inflation going back to early last year.

In July 2022, the personal consumption expenditures (PCE) index actually pointed to deflation, that is, the PCE index for July changed by -0.1 percent. Of course, this one-month reversal must be placed in proper context, with PCE inflation running at 6.3 percent over the past year, for example.

As for personal income, it grew by 0.2 percent in July, with real disposable personal income (i.e., personal income less personal current taxes and adjusted for inflation) increasing by 0.3 percent.

If we look at per capita real disposable personal income, which best captures the income that individuals have to consume, save and invest, July saw a small increase.

As noted in the following chart, we’re still in the midst of a year-long decline (post government pandemic support measures) in real per capita disposable income, with the July 2022 level not very different from the pre-pandemic February 2020 amount.

Source: Federal Reserve Bank of St. Louis, FRED

Finally, the breather on inflation in July also meant that real personal consumption expenditures grew by 0.2 percent, after being flat in June and declining in May.

The hope, of course, remains that perhaps July was a turning point, with inflation starting to come under control, and an assortment of positives for consumers, small businesses, entrepreneurs, workers and investors then resulting. Or, July merely represented a one-month pause in a continuing inflation onslaught that will be volatile from month to month.

Of course, it would be nice if elected officials stopped playing political games, such as passing an anti-growth measure and billing it as the “Inflation Reduction Act,” and instead getting focused on policies that would actually make positive contributions, such as substantive, broad-based and permanent tax and regulatory relief.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.