US inflation likely increased in July

WASHINGTON, D.C.: Inflation in the United States likely rose in July for the first time in 12 months, driven higher by more expensive gasoline and suggesting that the fight against rising prices may prove bumpier in the months ahead.

The inflation report the government will issue on Thursday is expected to show that consumer prices increased 3.3 percent from 12 months earlier. That would mark an uptick from a 3-percent year-over-year increase in June.

On a month-to-month basis, consumer prices are thought to have risen 0.2 percent from June to July, the same as in the previous month, according to a survey by the data firm FactSet.

A jump in energy prices was likely a major contributor to higher inflation in July. Gasoline prices have surged nearly 30 cents over the past month to a national average of $3.83 a gallon, according to AAA.

Excluding volatile food and energy costs, so-called core prices are expected to show a 4.8-percent rise in July over the previous year and 0.2 percent from a month earlier, unchanged from the previous month’s increases.

Thursday’s inflation data will be among the key metrics the Federal Reserve (Fed) will consider in deciding whether to continue raising interest rates. In its drive to tame inflation, the Fed has raised its benchmark rate 11 times since March 2022 to a 22-year high. Those rate hikes are believed to have helped significantly slow price increases.

Inflation, however, remains above the Fed’s 2-percent target. Economists say the easy progress has likely already been achieved. Gasoline prices, for example, though liable to bounce around from month to month, have already plunged from a peak national average of more than $5 a gallon, which was reached in June of last year after Russia’s invasion of Ukraine.

Much of the inflationary surge that began in 2021 was caused by clogged supply chains — ports, factories and freight yards — were overwhelmed by the explosive economic rebound from the pandemic recession of 2020. The result was delays, parts shortages and higher prices. But supply chain backlogs have eased in the past year, sharply reducing upward pressure on goods prices. Prices of long-lasting manufactured goods actually dipped in June.

The Fed now faces a daunting problem — persistent inflationary pressures in service businesses where wages represent a substantial share of costs. Worker shortages have led many of these services companies to sharply raise pay.

Another factor working against continued declines in year-over-year inflation rates is that prices soared in the first half of last year before slowing in the second half. So any price increase in July would have the effect of boosting the year-over-year inflation rate.

Still, economists caution against reading too much into one month of numbers. Many of them expect inflation to continue trending lower.

Despite chronic concerns about higher labor costs, the Labor Department’s employment cost index grew more slowly from April through June. Excluding government jobs, employee pay rose 1 percent, less than the 1.2-percent increase in the first three months of 2023. Compared with a year earlier, wages and salaries grew 4.6 percent, down from a year-over-year increase of 5.1 percent in the first quarter.

Rents, which had soared after the pandemic, are also cooling. Researchers at the Federal Reserve Bank of San Francisco wrote this week that “year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024.”

“I do think we’re going to get further deceleration, even if we do get a little bit of a pickup this month,” said Thomas Simons, senior US economist at the investment firm Jefferies.

But the Fed, Simons suggested, may not consider its work done until inflation returns to 2 percent.

Fed officials will have plenty of data to absorb before deciding whether to continue raising rates. Thursday’s report is the first of two consumer price index (CPI) numbers the policymakers will see before their next meeting on September 19 to 20. In addition, their favored inflation gauge, called the personal income expenditures price index, comes out on August 31.

Many economists and market analysts think the Fed’s most recent rate hike in July will prove to be its last: nearly 87 percent of traders expect no Fed hike next month, according to the CME Group’s FedWatch Tool.