US Consumer Prices Rose 5.4% in July as ‘Transitory’ Inflation Pressures Continue

Prices for goods and services advanced further in July, as pent-up demand continues to unravel.

According to the latest data published by the Bureau of Labour Statistics, consumer prices rose a moderate 0.5% since June, and were 5.4% higher compared to July 2020. Core CPI, which excludes volatility associated with food and energy prices, increased 0.3% month-over-month in July, and 4.3% from year-ago levels.

Looking under the hood, price pressures for the goods that Americans are actually buying remained persistent, as lodging rose 6% month-over-month, Owner Equivalent Rent jumped 0.29% since June, and shelter inflation jumped 3% from July 2020. In the meantime, goods and services affected by transitory effects related to the reopening of the economy edged lower in July, as airline fares declined 0.1%, with the broader transportation sector falling by 1.1% from June.

Following the release of the data, the yield on the 10-year Treasury fell lower, as did the US dollar. Federal Reserve Chair Jerome Powell has emphasized that any inflation above the central bank’s 2% target rate will eventually be temporary, but ongoing supply constraints continue to readjust the goalposts. A consumer survey published by the New York Fed on Monday showed that Americans’ inflation expectations for the next 12 months soared to a record high, while expectations for the medium term rose to the highest in eight years.

In any case, whether inflation proves to be temporary in the coming months or the medium term, one thing is for certain: prices are never reverting back to previous levels. Indeed, Powell explained as much following the July FOMC meeting, when he clarified “transitory” means that some of the bigger price increases will remain, but forthcoming inflation will eventually return to the 2% target rate. In short, prices will still remain elevated, they just won’t increase by the astronomical digits we are seeing today.

Information for this briefing was found via the BLS. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.