Prices paid by U.S. consumers climbed in July at a more moderate pace, though not enough to provide major relief from the cost increases weighing on sentiment and driving policy debate.
The consumer price index increased 0.5% from June and 5.4% from a year ago, according to Labor Department data released Wednesday. Excluding the volatile food and energy components, the so-called core CPI rose 0.3% from the prior month and 4.3% from July 2020.
Price measures of food, energy, shelter and new vehicles all contributed to the July gain. Airfares and auto insurance costs declined.
Faced with supply constraints and surging demand, businesses are raising prices for goods and services as cost pressures mount. Ongoing challenges including materials shortages, shipping bottlenecks and hiring difficulties will likely continue to put broader upward pressure on prices in the months ahead.
At the same time, some of the price surges linked to the economy’s reopening are beginning to ebb. The Labor Department said a smaller gain in the costs of used cars and trucks was a “major factor” in the moderation of the core CPI.
The gain in the overall CPI from the prior month was in line with economists’ projections, while the core rate was less than forecast.
Treasuries erased their losses following the data, while the dollar extended its drop and S&P 500 futures gained.
Federal Reserve Chair Jerome Powell has emphasized elevated inflation will ultimately prove temporary, but it’s unclear when supply constraints will ease. A New York Fed survey released Monday showed consumers’ inflation expectations over the next year are at a record high, while expectations for the medium term rose to an eight-year high.
The path of inflation in the coming months has policy implications both for the Fed, in terms of its timeline for reducing monetary support, as well as President Joe Biden.
Persistent inflation may make it harder for Biden to win unified Democrat support for another $3.5 trillion in social spending after the trillions of dollars of fiscal relief already injected into the economy since the start of the pandemic.