Consumer prices rose and demand began to come back online in July. Overall consumer prices jumped by 0.6%, seasonally adjusted, from June to July, after rising by that same amount one month prior. Prices are up 1% on a year ago basis.
The rise was about double what economists predicted for the month. A Wall Street Journal poll forecasted a 0.3% increase in July.
Gas prices accounted for about a fourth of the bump. The cost of fuel rose 5.3% monthly, though it was still 20.3% lower than last July. Food prices had their first drop in 15 months, falling 0.4% month over month. Grocery prices shrank by 1.1%, but the cost of dining out rose 0.5% at the same time. Clothing prices maintained momentum, rising 1.1%, after jumping by 1.7% in June. New auto prices grew by 0.8% monthly, while used car prices picked up by 2.3%, the most since early 2010.
The Bureau of Labor Statistics also reported the core consumer price index. This measure strips out the most volatile elements of overall CPI (mainly energy and food). Taking those out, prices still grew by 0.6% last month. This is the largest increase since June of 1991. Core inflation is up by 1.6% year over year.
Today’s data brings inflation concerns to the forefront. Consumer prices fell in March, April, and May, then rose in June and July. Even after some states reversed their reopenings, demand has improved and prices have risen along with it. At this point, we seem to have escaped the threat of deflation, a worry that some analysts harbored this spring. Now, we have to watch for inflation.
In June, the Federal Reserve announced that interest rates would remain near zero through 2022, to help the economy recover. That, combined with a $3 trillion stimulus package had some analysts worrying that inflation would skyrocket. Consumer prices are not in dangerous territory yet, but it will be something to keep our eyes on in the months ahead.