The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent in July on a seasonally adjusted basis, the same increase as in June, the U.S. Bureau of Labor Statistics reported [Thursday]. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.That makes for 4 out of the last 5 months where CPI has increased by 0.2% or less.
That’s because of the 0.0% figure in July 2022, which reflected gas prices falling back to earth after peaking the month before. So even if inflation speeds up to a 0.3% rate for each of the next 3 months, will the AP and others give us headlines that 12-month inflation is falling? And as usual, the lagging indicator of shelter was the reason for most of the (small) increase in prices.
Inflation in the U.S. rose in July after 12 months of declines, boosted by costlier housing. But so-called core inflation measures remained mild. https://t.co/T07CfxmANo— The Associated Press (@AP) August 10, 2023
The index for shelter was by far the largest contributor to the monthly all items increase, accounting for over 90 percent of the increase, with the index for motor vehicle insurance also contributing. The food index increased 0.2 percent in July after increasing 0.1 percent the previous month. The index for food at home increased 0.3 percent over the month while the index for food away from home rose 0.2 percent in July. The energy index rose 0.1 percent in July as the major energy component indexes were mixed.The “Core rate” (something that inflation hawks have been trying to hang onto as a reason to keep raising rates) also continued to fall. The index for all items less food and energy rose 0.2 percent in July, as it did in June. Indexes which increased in June include shelter, motor vehicle insurance, education, and recreation. The indexes for airline fares, used cars and trucks, medical care, and communication were among those that decreased over the month. Over the last 3 months, the “core” CPI has increased by a total of 0.8%, or an annual rate of around 3.3%-3.4%. And when we have wage growth that is consistently between 4% and 5%, what’s wrong with that? The low CPI number also means that July was another month of real wage growth, which has consistently been happening since inflation peaked in June 2022. And another consistent trend is that non-supervisory line workers have been seeing faster growth that workers overall. Saudis and Russians make an effort to manipulate prices and the US economy. Even if there is a slight uptick in inflation for August as a result of what's happened in the last month to gas prices, don’t be fooled into thinking that CPI levels are going back above 5% any time soon. Bottom line - if I were a US economic policymaker, I’d care a lot more about keeping US unemployment at or below 4% than in getting inflation below 3%. And I am suspicious of Central Bankers who do not feel the same (do you hear me, Kashkari???).