Inflation picked up in July for the first time, breaking a 12-month streak of slowing consumer price increases and underscoring that the rest of the battle to tame a historic spike in consumer costs could be more challenging, according to USA Today.
Inflation slightly increased in July 2023, according to data released by the Bureau of Labor Statistics on August 10, 2023. The Consumer Price Index (CPI) rose 0.3% from June and 3.2% from a year earlier. The core CPI, which excludes food and energy prices, rose 0.2% from June and 4.9% from a year earlier.
Consumer Price Index Data
Source: U.S. Bureau of Labor Statistics
The increase in inflation was driven by rising prices for rent, gas, and groceries. Rent prices rose 0.5% in July, the largest monthly increase since March 2007. Gas prices rose 1.7%, the largest monthly increase since May 2022. Groceries prices rose 0.6%, the largest monthly increase since May 2021.
Markets reacted positively to the report, with futures tied to the Dow jones Industrial Average up nearly 200 points and Treasury yields mostly lower.
Almost all of the monthly inflation increase came from shelter costs, which rose 0.4% and were 7.7% from a year ago. The Bureau of Labor Statistics said more than 90% of the increase came from the category, which accounts for about one-third of the CPI weighting.
Used vehicle prices declined 1.3% and medical care services were off 0.4%. The comparatively tame inflation levels helped raise worker pay. Real wages increased 0.3% on the month and were up 1.1% from a year ago, the BLS said in a separate release.
While services inflation has eased recently, Barclays says that’s largely because of drops in hotel and airfares, which are volatile. Air fares have fallen in part because of lower jet fuels costs.
The Federal Reserve is closely monitoring inflation and is expected to continue raising interest rates in an effort to cool the economy and bring inflation under control. The Fed is expected to raise rates by 0.25 percentage points in July and September, and maybe by 0.5 percentage points in December.
The Consumer Price Index (CPI), is the primary gauge as it measures the costs of goods in an urban market, which represents more than 90% of Americans, is issued each month by the U.S. Bureau of Labor Statistics. The CPI looks at a ‘fixed basket’ of roughly 80,000 goods and services. What gets put into that basket depends on the Consumer Expenditures Survey, which measures consumers to figure out which goods are important, and the primacy of those goods then sets their weight in the CPI.
It is unclear how much more inflation will rise in 2023. Some economists believe that inflation will peak in the coming months and start to fall back towards the Fed's target of 2%. Others believe that inflation will remain elevated for some time, due to factors such as the war in Ukraine and supply chain disruptions.