Moderate increase seen in US consumer prices for July, weekly jobless claims exceed predictions

Con­sumer prices in the U.S. expe­ri­enced a mod­er­ate uptick dur­ing July, attrib­uted in part to reduced expens­es for items such as pre-owned auto­mo­biles. This pre­vail­ing pat­tern might influ­ence the Fed­er­al Reserve’s con­sid­er­a­tion to main­tain the cur­rent inter­est rates in the upcom­ing month.

The the Labor Depart­ment said on Thurs­day that the CPI rose 0.2% last month, match­ing the gain in June. Though the increase in the annu­al CPI rate picked up for the first time in 13 months, that was because it was cal­cu­lat­ed from a low­er base after prices sub­sided last July fol­low­ing a jump that had boost­ed infla­tion to a pace not seen in more than 40 years.

The CPI advanced 3.2% in the 12 months through July. That fol­lowed a 3.0% rise in June, which was the small­est year-on-year gain since March 2021. Annu­al con­sumer prices have come down from a peak of 9.1% in June 2022. The Fed has a 2% infla­tion target.

Ear­li­er, econ­o­mists polled by Reuters had fore­cast the CPI would rise 0.2% last month and by 3.3% on a year-on-year basis.

Accord­ing to Sam Bullard, a senior econ­o­mist at Wells Far­go in Char­lotte, North Car­oli­na, the over­all trend in infla­tion is more firm­ly on a down­ward path than at the start of the year. “While head­line infla­tion has made quick work of get­ting back to low sin­gle dig­its, the year-over-year pace is like­ly to get stuck around 3% through the end of the year. This would keep a sus­tained return to the Fed’s tar­get in the dis­tance,” Reuters quot­ed Bullard as saying.

The CPI report on Thurs­day is one of two reports pre­ced­ing the U.S. cen­tral bank’s pol­i­cy meet­ing sched­uled for Sep­tem­ber 19–20. Mar­ket con­sen­sus sug­gests that the Fed­er­al Reserve is like­ly to main­tain its cur­rent pol­i­cy rate dur­ing this meet­ing, as indi­cat­ed by CME Group’s Fed­Watch tool. Since March 2022, the Fed has imple­ment­ed a series of increas­es in its bench­mark overnight inter­est rate, total­ing 525 basis points, result­ing in the present range of 5.25%-5.50%.

Exclud­ing the volatile cat­e­gories of food and ener­gy, the CPI exhib­it­ed a 0.2% increase in July, mir­ror­ing the rise observed in June. Over the twelve months lead­ing up to July, the core CPI demon­strat­ed a rise of 4.7%, fol­low­ing a 4.8% increase in June.

The upward tra­jec­to­ry of core infla­tion was mit­i­gat­ed by a con­sec­u­tive two-month decline in the prices of used cars and trucks. While rental costs con­tin­ued to ascend last month, the pace of increase has decel­er­at­ed since Jan­u­ary, and fur­ther mod­er­a­tion is antic­i­pat­ed for the lat­ter part of 2023 and through 2024.

Inde­pen­dent assess­ments indi­cate a down­ward trend in rental costs due to an influx of new apart­ment build­ings in the mar­ket. Mea­sure­ments of rent with­in the CPI typ­i­cal­ly lag behind these inde­pen­dent indi­ca­tors by sev­er­al months.

Anoth­er indi­ca­tor of an entrenched dis­in­fla­tion­ary trend is a recent sur­vey by the Nation­al Fed­er­a­tion of Inde­pen­dent Busi­ness. The sur­vey revealed that the pro­por­tion of small busi­ness­es iden­ti­fy­ing infla­tion as their pri­ma­ry con­cern dropped in July to its low­est lev­el since Novem­ber 2021. Like­wise, the per­cent­age of busi­ness­es rais­ing prices reached a 2.5‑year low.

The cool­ing labor mar­ket is also antic­i­pat­ed to con­tribute to infla­tion mod­er­a­tion. Gov­ern­ment data released last week indi­cat­ed the addi­tion of 187,000 jobs in July, mark­ing the sec­ond-low­est count since Decem­ber 2020. Nev­er­the­less, labor mar­ket con­di­tions remain tight, with unem­ploy­ment rates at lev­els not seen in over 50 years, there­by sus­tain­ing ele­vat­ed wage gains. With the rise in work­er pro­duc­tiv­i­ty, econ­o­mists hold an opti­mistic out­look on con­tain­ing labor costs.

In a sep­a­rate report from the Labor Depart­ment released on Thurs­day, ini­tial claims for state unem­ploy­ment ben­e­fits rose by 21,000 to reach a sea­son­al­ly adjust­ed 248,000 for the week end­ing August 5. Econ­o­mists had pre­dict­ed 230,000 claims for the cor­re­spond­ing peri­od. The num­ber of indi­vid­u­als receiv­ing ben­e­fits after the ini­tial week of aid, which serves as a proxy for hir­ing, decreased by 8,000 to 1.684 mil­lion dur­ing the week end­ing July 29, as per the claims report. These ongo­ing claims, often referred to as con­tin­u­ing claims, remain at his­tor­i­cal­ly low lev­els, sug­gest­ing that some laid-off work­ers expe­ri­ence only short peri­ods of unemployment.