Recent inflation readings point to gradual moderation, but consumers are still grappling with a tighter spending environment that has implications across retail and hospitality. The Consumer Price Index rose 3.4% year over year in July, while core CPI, which strips out food and energy, advanced 2.5%. Both measures eased slightly from the prior month and aligned with market expectations, supporting the view that price pressures are slowly cooling.
A Marcus & Millichap analysis noted that the latest data, despite ongoing instability in the Middle East and its potential impact on supply chains, could modestly reduce near-term pressure on the Federal Reserve to raise interest rates again. Even so, the report underscores that key cost categories remain elevated, limiting how much relief households actually feel.
Housing continues to be a major driver of core inflation. Owners’ Equivalent Rent remains a significant component, and apartment rents are still rising, though at a slower pace. Multifamily rents grew 1.3% over the past year, down from a 2.1% increase the year before, indicating more muted rent growth but not outright relief. At the same time, real average hourly earnings slipped 0.1%, signaling that wage gains are not fully keeping up with the cost of living.
Food costs are another pressure point. Grocery prices climbed 2.7% year over year in July, while restaurant prices increased 3.4%. Marcus & Millichap observed that the faster rise in dining costs may reflect a willingness among some consumers to maintain discretionary spending on meals out, but also flagged that this pattern could prove fragile if household purchasing power erodes further.
Retail real estate fundamentals are described as mixed. Vacancies remain 60 basis points below their long-term average, implying a relatively tight market, yet demand for space has been uneven. Net space relinquishment occurred in three of the last six quarters, and the report characterizes retailers as operating in a still-resilient consumer environment but deploying capital selectively.
The leisure and hospitality sector is also showing signs of strain. The industry shed 40,000 jobs nationally in July, and hotel occupancy declined by 20 basis points in June even with travel tied to the World Cup. Marcus & Millichap cautioned that elevated transportation costs and softening travel demand could create additional headwinds for hotel performance through year-end.
Overall, the firm concluded that while moderating inflation may provide the Federal Reserve with a bit more flexibility, consumers are not yet past the challenges of higher living costs. Persistent increases in housing, food, transportation, and travel expenses continue to weigh on household budgets, tempering the benefits of the recent cooling in headline inflation.
