A member of the wait staff works between tables at Four Corners restaurant, in Chapel Hill, N.C., on April 16. Prices for U.S. consumers rose in July at the slowest pace since February, a sign that Americans could gain some relief after four months of sharp increases that had elevated inflation to its fastest pace in more than a decade.Gerry Broome/The Associated Press
U.S. consumer prices increases slowed in July even as they remained at a 13-year high on a yearly basis and there were tentative signs inflation has peaked as supply-chain disruptions caused by the pandemic work their way through the economy. The data could provide some support to Fed officials who have repeatedly said that the current burst in inflation is temporary and likely to fade as the handful of categories that have caused inflation to surge in recent months get back on an even keel.
The consumer price index increased 0.5 per cent last month after climbing 0.9 per cent in June, the Labour Department said on Wednesday. In the 12 months through July, the CPI advanced 5.4 per cent. The drop in the month-to-month inflation rate was the largest in 15 months.
Price gains for used cars and trucks, which have accounted for an outsized chunk of the inflation boost in recent months, rose 0.2 per cent, a sharp drop from the 10.5-per-cent increase the prior month. Prices for airline fares also edged down 0.1 per cent.
Excluding the volatile food and energy components, the CPI rose 0.3 per cent after increasing 0.9 per cent in June. That was the smallest gain in four months and the first deceleration in the so-called core CPI since February.
The core CPI rose 4.3 per cent on a year-on-year basis after advancing 4.5 per cent in June. Annual inflation rates have been lifted by the fading out of last spring’s weak readings from the CPI calculation but those so-called base effects are levelling off.
Economists polled by Reuters had forecast the overall CPI would rise 0.5 per cent and the core CPI would rise 0.4 per cent. U.S. Treasury prices slipped following the release of the data.
“It fits the Fed’s narrative and they can pretty much stand pat on their current strategy,” said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.
The U.S. Federal Reserve is paying close attention to price pressures as it mulls when to begin to reduce its massive bond holdings and how soon to begin lifting rates from near zero. It also remains on the lookout for any signs that price pressures may broaden.
Inflation “seems to have crested” and should drop back in coming months, Richmond Fed president Thomas Barkin told Reuters in an interview on Wednesday.
Even if inflation has peaked, it is expected to remain elevated through part of 2022. There were also possible hints that the rise in price pressures may not fall back rapidly as other sectors saw price gains holding or accelerating.
New vehicle prices rose by 1.7 per cent, the third straight month of gains above 1.5 per cent. A global semiconductor shortage that has held back auto production has stripped automakers of inventory and could continue to cause price gains in the months ahead.
Prices for shelter and energy also increased while the recent jump in bar and restaurant prices showed no sign of a slowing. They rose 0.8 per cent in July, the fourth month of accelerating gains, and an indication that a continuing shortage of workers and rising wages are being passed through.
The swiftness of the economic recovery has caused a mismatch between supply and demand with consumers bolstered by low interest rates and nearly US$6-trillion in government relief.
The U.S. vaccination drive, with nearly 170 million Americans immunized against COVID-19, and the arrival of summer with fewer restrictions compared with last year have caused a surge in demand for airline travel, hotel and motel accommodation. Hotel room rates rose by 6 per cent in July.
The Fed’s preferred inflation measure, the core personal consumption expenditures price index, jumped 3.5 per cent in June, the largest gain since December, 1991.