U.S. CPI Unchanged in July with Drop in Energy Prices

Consumer prices were unchanged in July after an outsized 1.3% m/m jump in June. The y/y rate slowed to 8.5% in July from 9.1% in June, which was the highest reading since November 1981. The Action Economics Forecast Survey had expected a 0.2% m/m increase. This was the first reading below expectations since August 2021. The core index (that is, excluding food and energy prices) increased 0.3% m/m in July, down markedly from the 0.7% m/m advance in June with the y/y rate unchanged at 5.9%. The recent high in the y/y core rate was 6.5% in March. The Action Economics Forecast Survey had anticipated a 0.5% monthly gain in the core index.

The sharp slowdown in the headline rate in July was due mostly to a 4.6% m/m drop in energy prices, led by a 7.7% monthly decline in gasoline prices. Without the decline in energy prices, the rest of the CPI was up 0.4% m/m in July. Apart from the fall in the price of gasoline, the price of natural gas declined 3.6% m/m and the price of fuel oil plunged 11.0% m/m. By contrast, the price of electricity increased 1.6% m/m. This was the largest monthly decline in the price of gasoline since April 2020 and the first monthly decline in the price of natural gas since January.

Food prices continued to soar, rising 1.1% m/m in July on top of a 1.0% m/m increase in June with the y/y rate rising to 10.9%, its highest rate since May 1979. This was the seventh consecutive month in which food prices have increased 0.9% m/m or more. Over this seven-month period, food prices have risen at a 12.7% annual rate. In July prices rose across each major food category.

Prices of commodities less food and energy rose 0.2% m/m (7.0% y/y) in July, down sharply from a 0.8% m/m increase in June. The y/y rate has now slowed for five consecutive months from a recent high of 12.3% y/y in February. New vehicle prices rose 0.6% m/m in July versus 0.7% m/m in June, while used vehicle prices fell 0.4% m/m after gains of 1.6% and 1.8%, respectively, in June and May. Apparel prices also edged down in July, falling 0.1% m/m following an 0.8% m/m rise in June.

Services prices less energy services rose 0.4% m/m (5.5% y/y) in July, their smallest monthly gain since January, following a 0.7% m/m increase in June. The elevated cost of shelter, the largest component of this category, continues to be worrisome as it indicates that inflation pressures may be broadening and becoming more persistent. The cost of shelter rose 0.5% m/m (5.7% y/y) in July, down slightly from a 0.6% m/m gain in June, which was the highest monthly increase since March 2004. The 5.7% y/y increase was the highest since February 1991. The price of other lodging away from home (which includes hotels and motels) fell 3.2% m/m in July on top of a 3.3% m/m decline in June. The rise in the price of medical services slowed to 0.4% m/m in July from 0.7% m/m in June but the y/y rate continued to rise, to 5.1% in July (the highest since August 2020) from 4.8% y/y. Transportation services prices fell 0.5% m/m (+9.2% y/y) in July following a 2.1% monthly jump in June. This mostly reflected a 7.8% m/m drop in airfare, likely due to falling energy prices.

The Consumer Price Index data can be found in Haver's USECON database with additional detail in CPIDATA. The Action Economics survey figure is in the AS1REPNA database.

Labor Market Recovery During the COVID-19 Pandemic from the Federal Reserve Bank of Philadelphia is available here.