Latest Consumer Price Index reveals first inflation increase in a year

**Rising Housing Costs Drive Inflation in the US, While Core Inflation Remains Stable**

Inflation in the United States experienced a rise in July after 12 consecutive months of declines, primarily due to the increased cost of housing. However, when excluding the volatile food and energy prices, core inflation matched the smallest monthly increase in nearly two years.

**Inflation Rate Reaches 3.2%, Still Below Peak Levels**

According to the government’s reported figures, consumer prices increased by 3.2% compared to the previous year. This is higher than the 3% annual rise observed in June, which marked the lowest rate in over two years. Despite this increase, the inflation rate remains well below the peak of 9.1% witnessed last year, but still exceeds the Federal Reserve’s 2% target.

**Core Inflation Figures Remain Tame**

While the overall inflation rate is crucial, the Federal Reserve, economists, and investors pay close attention to the core inflation figures, as they provide insights into the future trajectory of inflationary pressures. The data for June to July revealed that core inflation remains at a modest 0.2%.

**Key Barometers for the Federal Reserve**

The price data from Thursday’s report will play a significant role in the Federal Reserve’s decision-making process regarding whether to continue raising interest rates. The Fed has raised its benchmark rate 11 times since March 2022, resulting in a 22-year high, as part of their efforts to tame inflation.

**Energy Prices and Their Impact on Inflation**

The recent surge in energy prices has rekindled inflationary pressures within the economy. Gasoline prices, for instance, have increased by nearly 30 cents per gallon over the past month, with the national average currently sitting at $3.83 per gallon.

**Progress in Conquering Inflation Has Slowed**

Economists suggest that the relatively easy progress in combating inflation has likely already been achieved. Gasoline prices, for example, have already undergone substantial decreases, dispelling concerns that they will reach previous highs. However, the fight against inflation differs across various sectors, with the challenges varying from supply chain disruptions to persistent inflation pressures within service businesses.

**Supply Chain Disruptions and Price Increases**

The surge in inflation from 2021 was largely caused by bottlenecks in supply chains. The explosive economic rebound following the pandemic recession overwhelmed ports, factories, and freight yards, resulting in delays, parts shortages, and increased prices. However, these supply chain backlogs have eased over the past year, significantly reducing upward pressure on goods prices. In fact, prices of long-lasting manufactured goods even saw a decrease in June.

**Persistent Inflationary Pressures in Service Businesses**

The Fed faces a significant obstacle with persistent inflationary pressures in service businesses such as restaurants, hotels, and entertainment venues, where wages represent a substantial portion of costs. The shortage of workers in these sectors has led many companies to raise wages significantly. Consequently, these businesses have been forced to raise prices to cover the higher labor costs, further fueling inflation.

**Moderating Used Car Prices and Rents**

Used car prices, which had skyrocketed in the aftermath of the pandemic, have begun to decline. In July, prices dropped 5.1% compared to the previous year. The drop in prices is attributed to automakers acquiring more computer chips and being able to produce more new vehicles, thus reducing the demand for used cars. Additionally, rents, which had also surged following the pandemic, are beginning to cool off and are expected to continue tapering throughout late 2024.

**Data Analysis and Future Projections**

Economists caution against drawing too many conclusions from a single month of data. While the current figures indicate an increase in inflation, many experts anticipate inflation will continue to trend lower in the future.

**Data Impact on the Federal Reserve’s Decision**

Federal Reserve officials will need to analyze numerous data points before determining whether to continue raising interest rates. In addition to the current Consumer Price Index (CPI) report, another CPI report will be released before the next Federal Reserve meeting on September 19-20. They will also consider the Personal Income Expenditures Price Index, which comes out on August 31, and the August jobs report, set to be released on September 1.

**Market Expectations for Future Rate Hikes**

Many economists and market analysts believe that the Federal Reserve’s most recent rate hike in July will be its last. According to the CME Group’s FedWatch Tool, almost 87% of traders do not expect the Fed to raise rates in the next month, indicating a growing sense of stability in the market.

*(Note: The article has been rewritten in the active voice, but some sentences were rephrased in the passive voice to preserve their original meaning.)*

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