July inflation data signaled gradual easing of price pressures, even as many households continue to feel squeezed. The Consumer Price Index rose 3.4% year over year, while core CPI, which strips out food and energy, increased 2.5%. Both measures edged down slightly from the prior month and aligned with market expectations, reinforcing the view that inflationary momentum may be slowing.
A recent Marcus & Millichap report noted that the latest readings, delivered against a backdrop of ongoing turmoil in the Middle East and potential supply chain disruption, could modestly reduce immediate pressure on the Federal Reserve to pursue additional interest rate hikes. Even so, the report underscores that the inflation picture remains a key factor shaping economic and real estate performance.
Housing costs are still a major driver of core CPI, with Owners’ Equivalent Rent accounting for a significant share of the index. Apartment rents also remain a contributor, rising 1.3% year over year in July, though that pace is down from a 2.1% increase a year earlier and points to more muted rent growth than in recent cycles.
Despite moderating inflation, real average hourly earnings slipped 0.1%, indicating that wage gains are not fully keeping up with price levels. This erosion in purchasing power suggests consumers are still under pressure, a dynamic with direct implications for retail and hospitality performance.
Food costs added to the strain. Grocery prices climbed 2.7% year over year in July, while restaurant prices increased 3.4%. Marcus & Millichap observed that the gap between at-home and away-from-home food inflation may show that households are still willing to spend on discretionary dining, but it also highlights potential vulnerability if income growth continues to lag costs.
Retail property metrics reflected this cross-current. According to the report, retail vacancy remains 60 basis points below its historical average, yet space demand has been uneven, with net space relinquishment in three of the past six quarters. The findings suggest retailers are navigating a fundamentally resilient consumer base but are increasingly selective and cautious in their expansion and occupancy decisions.
Leisure spending is showing more visible signs of strain. The Leisure and Hospitality sector shed 40,000 jobs nationally in July, and hotel occupancy declined by 20 basis points in June, even with travel activity supported by World Cup-related demand. Marcus & Millichap cautioned that elevated transportation costs and indications of moderating travel demand could create additional headwinds for hotel performance through year-end.
Overall, the report concludes that the consumer economy is not yet on firm footing. While cooler inflation readings may give the Federal Reserve slightly more flexibility on future policy moves, rising costs for housing, dining, transportation and travel continue to burden household budgets, shaping spending behavior and, in turn, influencing conditions for retail and hospitality real estate.
