Client costs up 5.4%, core inflation not so unhealthy

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Prices Americans pay for everyday goods and services rose in July as pent-up demand for travel and restaurants kept inflation high, but rose about as much as economists had expected.

The Labor Department reported Wednesday that its consumer price index was up 5.4% year over year in July, the same level as in June and the largest increase since August 2008.

The government said the CPI was up 0.5% month-on-month, in line with a consensus forecast from economists polled by Dow Jones.

So-called core inflation, which excludes energy and food, rose 0.3% last month, just below a forecast increase of 0.4% and well below the 0.9% increase in June. The core value is up 4.3% from last year, a slight slowdown from the 4.5% seen in June.

Economists often consider the core CPI a more reliable indicator because it is isolated from the frequent fluctuations in oil and food prices.

Sharp slowdowns in inflation in selected sectors of the economy, which had seen soaring prices in the spring, helped keep the headlines at bay.

Used car and truck prices, which had risen sharply between April and June due to Americans’ desire for vacation, rose by just 0.2% in July, after having risen by more than 10% in the previous month.

A customer wearing a protective mask makes a purchase at an Albertsons grocery store in San Diego, California on June 22, 2020.

Bing Guan | Bloomberg | Getty Images

Clothing prices were flat after rising 0.7% in June, and transportation service prices even fell after rising more than 1% at the end of the second quarter.

The Federal Reserve has been keeping a close eye on inflation reports as the central bank’s job is to maximize employment and keep prices stable.

Chairman Jerome Powell and other officials acknowledge the recent price hike but believe that inflation is “transitory” and that prices will not rise at their current pace for long.

“Today’s CPI data should help allay investor fears that the Fed is too relaxed on inflationary pressures,” wrote Seema Shah, chief strategist at Principal Global Investors. “The details of the data release suggest some easing of the reopening and price hikes driven by supply scarcity, and preliminary suggests that inflation may have peaked.” Investors in the transition period will easily feel confirmed. “

Federal Reserve Chairman Jerome Powell arrives for a Senate Banking Committee hearing in Washington, DC on Thursday, July 15, 2021.

Al Drago | Bloomberg | Getty Images

The Fed has kept rates near zero for the past 12 months and continues to flush the financial markets with $ 120 billion in emergency bond purchases each month. Several members of the central bank, including vice chairman Richard Clarida, have started making predictions for possible rate hikes.

As one of the most widely cited inflation meters, the consumer price index measures changes in how much American consumers pay for everyday goods and services such as groceries, gasoline, clothing, restaurant meals, haircuts, concerts, and cars.

The CPI and other pricing measures rose in 2021 in large part due to a comeback in consumer spending and U.S. gross domestic product as Covid restrictions eased.

Economic activity, as measured by GDP, rose at an annualized rate of 6.5% in the second quarter as Americans flocked to restaurants, went on summer vacation, and otherwise resumed activities that Covid-19 had hampered.

Consumer spending increased in the three months ended December 30, supported by the nationwide introduction of vaccines.

At the same time, the pent-up demand for travel, retail, and restaurants has kept many businesses catching up and resulted in multiple hiccups on the supply side of the U.S. economy.

Employers struggling to find workers raised wages or offered contract bonuses to fill a record 10.1 million job openings across the economy at the end of June. The leisure and hospitality sector, which includes restaurants, bars and hotels, has one of the highest job vacancies with more than 1.6 million jobs.

But instead of absorbing the higher labor and material costs, some companies have begun to pass the effects of higher wages on to their consumers. A simultaneous shortage of semiconductors has paralyzed auto production and is a major contributor to the recent surge in new and used car prices.

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