Hello and welcome to notes in the week ahead. A JP Morgan Asset Management podcast that provides insights on the markets and the economy to help you stay informed in the week ahead. Hello, this is David Kelly. I'm Chief strategist here at JP Morgan Asset Management. Today is June 12th, 2023 markets in the week ahead will be focused on Wednesday's FO MC meeting.
We expect the fed to leave the federal funds rate unchanged although both the post meeting statement and the dot plot will likely emphasize that in action this week should be considered skipping a rate hike rather than putting an end to monetary tightening. Indeed fed communications could explicitly warn of a possible further rate hike in July on balance.
However, cooling data on inflation growth between now and that meeting should be enough to convince the fed that no further tightening is warranted. Some of these data will be released this week on the inflation front, we expect to see very mild increases in PP I inflation on Wednesday and all right declines in import prices on Thursday. However, markets will be most focused on Tuesday's.
May CP I report overall, we estimate that consumer prices rose by 2/10 of a percent in May and we up 4.2% year over year. This will mark the 11th consecutive decline in the seasonally adjusted year over year inflation rate since it peaked at 8.9%. Last June. A look at CP I components and what's driving them suggest that inflation should continue to decline. We estimate that energy prices fell 9.9% year over year in May as wt I crude oil prices declined from $106 per barrel in May 2022 to $72.
Last month, natural gas prices fell even more sharply from $8.14 in May of 2022 to $2.15 a year later. In both cases, prices may trend up from here. Us. Energy Department forecasts are looking for a WT I price of $80 a barrel and a natural gas price of $3.64 by the fourth quarter of 2024. However, even if this turns out to be the case, energy prices experienced by consumers are unlikely to see a significant rise. Gasoline refiner margins remain very high relative to pre pandemic levels.
And as refining bottlenecks are resolved, gasoline prices could well move sideways. Despite an uptick in crude oil prices, electricity prices could also move sideways in a lagged response to a fall in natural gas prices. Overall. Provided. We see slow but steady growth in the US and global economies and avoid any major geopolitical or environmental shock. We don't expect energy prices to see any significant move up or down for the rest of 2023 and 2024.
We estimate that food prices were still up a painful 6.9% year over year in May. Part of this reflects restaurant and fast food prices that have been driven higher by rising labor costs. That being said most of the food category reflects grocery store prices that had been rising very rapidly due to a spike in food commodity prices following Russia's invasion of Ukraine supply chain disruptions and very strong consumer demand.
However, food commodity prices have now fallen to levels that prevailed before the Ukraine invasion. The ISM supplier delivery index along with other reports suggest that bottle necks are no longer a significant issue. Meanwhile, idiosyncratic issues that boosted egg and milk prices last year seemed to have eased perhaps most importantly, lower and middle income consumers are being squeezed by the lagged effects at the end of the pandemic aid.
And this is showing up in lower real spending on groceries. This should put downward pressure on food inflation for the rest of 2023 and into 2024 we estimate the shelter which is a huge 35% weight within the CP I rose 8.0% year over year in May. Accounting for two thirds of CP I inflation. The shelter share of CP I can be broken down into roughly 1% for hotels. 8% for actual rent of a property, 25% for owners equivalent rent and 1% for other small pieces.
Following a post pandemic surge, hotel rates appear to have stabilized. More importantly, a seasonally adjusted version of Zillow's observed rent index shows that asking rents on available units have now risen at just a 1.4% annualized pace in the six months ending in April.
This stands in very sharp contrast to a 9.3% annualized increase for the same statistics six months earlier and suggests that the government's measure of rent and owners equivalent rent, which lag new rental agreements should see a significant deceleration in the months to come. Finally, CP I outside of food energy and shelter is also likely to accelerate going forward.
The price of both new and used vehicles has stalled in recent months and high auto loan interest rates increase supplies and a squeeze on consumer budgets should hold them in check in the months ahead. Moreover, vehicle prices feed through to both auto insurance and auto repair costs with a lag. So that these two segments of CP I which rose by an astonishing 15.5 and 13.3% respectively in the year that ended in April 2023 should see much less inflation in the months ahead.
While rising labor costs may impede the decline in inflation. In some of these areas, wage growth has actually decelerated over the past year and remains remarkably tame. Given the tightness of labor markets looking further out, we expect continued mild inflation in June with another 2/10 of a percent month over month increase cutting year over year.
CP I growth to just 3.2% thereafter year over year inflation should drift sideways the rest of this year and then resume its downward trend in 2024 reaching 2.3% by the end of 2024. This would be roughly in line with the fed's 2% target for the personal consumption deflator. While prospects for lower inflation look good, the outlook for real economic growth remains very uncertain. Real GDP rose at a 1.3% annualized rate in the first quarter.
And our models predicted a similar outcome for the second. Both retail sales and manufacturing output appeared to be relatively weak as should be confirmed by reports due out on Thursday. However, payroll employment growth in May was very strong. Job openings remain well above normal. The downturn home building appears to have abated and corporate profit growth in the first quarter, handily beated inflation or beat expectations.
All this being said we've seen an increase in layoff announcements and unemployment claims in recent months along with some increase in loan delinquency rates, the resumption of student loan payments later on this summer should put further pressure on consumers but most importantly, while bank deposits have stabilized in recent months, following regional banking turmoil earlier this year, at best, the economy will be constrained by tighter bank credit for the rest of this year and into 2024.
At worst, a renewal of financial volatility could tip a slow growing us economy into recession. The FO MC should weigh progress on inflation against the risk of recession in its meeting this week. Looking at these two issues separately, it would seem to be an easy call. There is no need to raise the risk of recession any further to combat an inflation problem. That is so clearly fading. It should be an easy call but that is not likely to be the message from the Fed this week.
Indeed, it's possible that the post meeting statement, a press conference could reveal some dissent on the committee with some voting to hike further at this time and others indicating a bias towards tightening again in July on balance.
However, we think the numbers just won't support any further tightening and this will become clearer in the next few weeks if so, the investment environment could support lower long term interest rates, a lower dollar and further gains in stock prices as investors no longer have to fight a fed, that no longer has to fight inflation. Well, that's it for this week. Please tune in again next week. And if you have any questions in the meantime, please reach out to your JP Morgan representative.
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