July’s inflation data points to a gradual easing of price pressures but underscores that consumers and property sectors are still navigating a challenging environment. The Consumer Price Index rose 3.4% year over year, while core CPI, which excludes food and energy, increased 2.5%. Both measures edged lower on a monthly basis and came in line with market expectations, indicating that inflation may be moving toward a more stable path.
A recent Marcus & Millichap report noted that these readings, delivered amid ongoing turmoil in the Middle East and potential supply chain risks, could modestly reduce immediate pressure on the Federal Reserve to raise interest rates further. Even so, the report emphasizes that softer inflation has not yet translated into broad relief for household budgets.
Housing remains a key driver of core inflation. Owners’ Equivalent Rent continues to account for a large share of the index, and apartment rents are part of the mix. Apartment rents rose 1.3% over the past year, a slower pace than the 2.1% gain recorded a year earlier, underscoring muted rent growth even as shelter costs continue to weigh on consumers.
At the same time, real average hourly earnings slipped 0.1%, signaling that wage gains are not fully keeping up with living costs. This erosion in purchasing power limits the degree to which moderating inflation can support discretionary spending and may constrain how households allocate dollars across housing, retail, and services.
Food costs added to the pressure in July. Grocery prices climbed 2.7% year over year, while restaurant prices rose 3.4%. Marcus & Millichap observed that the gap between grocery and dining inflation could reflect a willingness to maintain discretionary dining, but also warned that such spending may be vulnerable if household finances weaken further.
Retail property performance reflects this tension. Sector fundamentals were described as mixed, with vacancy holding about 60 basis points below its long-term average but space demand remaining volatile. Net space relinquishment occurred in three of the past six quarters, indicating that some tenants are giving back space even as others expand. According to the report, retailers are operating in a generally resilient consumer backdrop but are increasingly selective about where and how they commit capital.
Leisure and hospitality indicators also show signs of strain. The sector shed 40,000 jobs nationally in July, and hotel occupancy declined by 20 basis points in June despite incremental demand tied to World Cup travel. Marcus & Millichap cautioned that elevated transportation costs and moderating travel demand could place additional pressure on hotel performance through year-end.
Overall, the report concludes that the consumer economy is not yet out of the woods. While cooling inflation may provide the Federal Reserve with more flexibility in setting policy, persistent cost increases in housing, dining, transportation, and travel continue to squeeze household budgets, with direct implications for demand across retail and hospitality real estate.
