U.S. consumer prices ascended more than expected in July, with measurements of hidden inflation spreading by the most in 29-1/2 years amid broad gains in the costs of goods and services.
The announcement from the Labor Department on Wednesday, however, probably does not mark the start of alarming inflation, and the Federal Reserve is likely to continue pumping money into the economy to help the restoration from the COVID-19 recession.
The jump in prices is likely to unwind sharp declines experienced when nonessential businesses were shuttered in mid-March to slow the coronavirus spread. The higher prices further allay the fear of deflation. A downturn in the general price level is harmful during a recession as consumers and businesses may defer purchases in the hope of lower prices.
The consumer price index rose up by 0.6% last month, with petrol computing for a quarter of the gain. The CPI expanded by the same margin in June. In the twelve months through July, the CPI increased by 1.0% after rising by 0.6% in June.
Precluding the volatile food and energy components, the CPI rose up by 0.6% last month as the cost of motor vehicle insurance grew a record 9.3%. That was the most significant gain in the so-called core CPI since January 1991 and followed a 0.2% rise in June. In the twelve months through July, the core CPI jumped by 1.6% after expanding by 1.2% in June.
Economists’ Analysis and Predictions
Economists researched by Reuters had predictions that the CPI would rise by 0.3% in July, and the core CPI would elevate by 0.2%.
The announcement on Tuesday that producer prices increased in July.
With at least 31.3 million people being on unemployment benefits, inflation is merely a threat in the services economy.
The Fed tracks the core PCE price index for its 2% inflation target. The core personal consumption expenditures (PCE) price index rose 0.9% on a year-on-year basis in June. Economists forecast July data, which will be released later this month, to show the core PCE price index rose by around 1.4%.
The U.S. central bank has adopted an unusual easy monetary policy, slashing interest rates to near zero and making big-scale asset purchases, and transmitting loans to companies, among other measurements. But the growing recovery from the global pandemic is showing signs of stress as new COVID-19 infections spiral across the United States, making authorities in some of the hot spots to either close down businesses again or pause reopenings.
Job growth slowed majorly in July. The economy, which entered the recession in February, suffered its largest drop since the Great Depression in the second quarter, with GDP falling at its abrupt pace in at least seventy-three years.
Stocks on Wall Street were trading with the S&P 500.SPX index curbing toward a record high. The dollar.DXY fell against a box of currencies. U.S. Treasury prices were trading mostly lower.
In July, gasoline prices jumped by 5.6% after climbing up to 12.3% in June. Food prices fell 0.4%, the first cutback since April 2019, after jumping 0.6% in June. The price of food dropped 1.1%, with beef prices plunging 8.2% after rising in recent months. But the cost of food that is not consumed at home rose 0.5%, with full-service meals increasing 0.4%.
Owners’ equivalent rent of primary residence, which a homeowner would pay to rent or receive from renting a home, rose by 0.2%. That followed June’s 0.1% gain, the slowest rise since July 2013. Many tenants have entered into fortitude agreements with landlords.
Customers also paid more for healthcare in July, with prices rising by 0.4%. The price of doctor visits increased by 0.7%, and prices for hospital services rose by 0.2%. The cost of prescription medication, however, fell by 0.2%.