High inflation persists, but pressure may ease. The Consumer Price Index advanced 9.1 percent year-over-year in June, its fastest pace since November 1981. Accelerated inflation was predominantly driven by higher energy and food prices. Excluding those two categories, core CPI inflation was 5.9 percent last month, a slowdown from the March high of 6.5 percent. While a widespread shortage of raw materials, finished goods and labor continue to push up prices, some relief may be ahead. Global shipping delays have eased, and the costs of various commodities are trending lower, including oil and wheat, which were heavily disrupted by the war in Ukraine. This situation could still reignite inflation and cause additional economic turbulence, but the recent positive trends imply that supply chains are adjusting.

Rising costs influencing space needs of renters and tenants. While demand for commercial space continues to improve from pandemic troughs, households and businesses are evaluating budgets amid rising prices. This could moderate the pace of growth going forward and shift the composition of demand. Some Class A renters may look to Class B+ options or units in less costly areas. Companies with substantial office and industrial space commitments may consider relinquishing floor plans that no longer fit their needs. Consumers may allocate spending more toward necessities, which could alter the expansion plans of some retailers and hotel bookings at certain chain scales and locations.

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* Through June

** Historical Fed Funds Rate & 10-Year through June, forecast assumes hikes of 100 bps, 50 bps, 50 bps and 25 bps.

Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Federal Reserve; Moody’s Analytics; RealPage, Inc.; U.S. Census Bureau