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Inflation increased significantly for the first time in over a year in July, but the latest numbers unveiled Thursday in the latest Consumer Price Index contain encouraging details for the Federal Reserve’s war on runaway pricing.
The CPI increased 0.2 percent in July and rose 3.2 percent annually following a 3 percent year-over-year increase in June, according to data released by the Bureau of Labor Statistics.
And while July marked the first meaningful acceleration in 13 months, it was a far cry from the 9.1 percent annual reading issued in June 2022.
The index for shelter was once again the biggest contributor to overall inflation, rising 0.4 percent for the month and accounting for over 90 percent of the increase, according to data released Thursday by the Bureau of Labor Statistics. The index for rent also rose 0.4 percent for the month while the index for lodging away from home decreased 0.3 percent in July after falling 2 percent in June. Annually, the index for shelter was up 7.7 percent.
Rent prices have however been falling overall recently, and should be reflected in the CPI following a lag.
“There’s a known 12-month lag between observed rents & CPI rents & observed annual rent growth has been moderating since the spring of 2022,” Firtst American Economist Odeta Kushi wrote on Twitter. “There’s more shelter inflation deceleration in the pipeline this year, which bodes well for a continued slowdown in inflation.”
The increase comes as the Federal Reserve weighs whether or not to continue hiking interest rates towards its goal of 2 percent inflation. After a brief pause in June, the Fed resumed rate hikes in July, and experts predict further hikes are on the horizon with inflation rates refusing to drop to the Fed’s goal.
“The Fed’s decision-making has gotten more complicated with the release of the July inflation report this morning, which shows that inflation rose to 3.2 percent in July after 12 consecutive months of declines,” said Lisa Sturtevant, chief economist for Bright MLS. “The FOMC will meet in September to decide if there will be another rate hike, which would move the target federal funds rate to its highest level since March 2001. Another rate increase is likely, since inflation is still above the Fed’s 2 percent target, but there seems to be growing dissonance among FOMC members about future increases.”
That dissonance was evident this week in comments made by regional Fed Presidents John Williams of New York and Patrick Harker of Philadelphia, who both indicated they could see rate hikes come to an end. However, Governor Michelle Bowman said she expects more increases, while Governor Christopher Waller has also indicated he believes hikes should come to an end.
