WASHINGTON, Aug 12 — US consumer prices increased more than expected in July, with a measure of underlying inflation rising by the most in 29-1/2 years as the costs of goods and services climbed.
The report from the Labor Department today probably does not mark the start of a troubling rise in inflation, and the Federal Reserve is likely to continue pumping money into the economy to aid the recovery from the Covid-19 recession.
Tens of millions of Americans are unemployed and coronavirus infections are spreading across the country.
The consumer price index rose 0.6 per cent last month, with gasoline accounting for a quarter of the gain. The CPI increased by the same margin in June. In the 12 months through July, the CPI accelerated 1.0 per cent after climbing 0.6 per cent in June.
Economists polled by Reuters had forecast the CPI would rise 0.3 per cent in July and gain 0.8 per cent on a year-on-year basis.
Excluding the volatile food and energy components, the CPI jumped 0.6 per cent last month. That was the largest gain since January 1991 and followed a 0.2 per cent rise in June. In the 12 months through July, the core CPI surged 1.6 per cent after increasing 1.2 per cent in June.
The Federal Reserve has adopted an extraordinarily easy monetary policy, which has seen the US central bank slashing interest rates to near zero as well as making large-scale asset purchases and funneling loans to firms among other measures.
But the budding recovery from the pandemic is showing signs of stress as new coronavirus infections spiral across the United States, forcing authorities in some of the hot spots to either shut down businesses again or pause reopenings.
Job growth slowed significantly in July and at least 31.3 million people are on unemployment benefits. The economy, which entered recession in February, suffered its biggest blow since the Great Depression in the second quarter, with gross domestic product dropping at its steepest pace in at least 73 years.
The Fed tracks the core personal consumption expenditures (PCE) price index for its two per cent inflation target. The core PCE price index rose 0.9 per cent on a year-on-year basis in June. July’s core PCE price index data will be released later this month.
Stocks on Wall Street opened higher with the S&P 500 index edging toward a record high as a sharp fall in US oil stockpiles drove up prices. The dollar fell against a basket of currencies. US Treasury prices were trading mostly lower.
Food prices fall
Gasoline prices advanced 5.6 per cent in July after jumping 12.3 per cent in June. Food prices fell 0.4 per cent, the first decrease since April 2019, after rising 0.6 per cent in June.
The cost of food consumed at home dropped 1.1 per cent. Beef prices tumbled 8.2 per cent after surging in recent months. The cost of dairy products, nonalcoholic beverages and cereals also fell. But the cost of food consumed away from home rose 0.5 per cent. Prices for full service meals increased 0.4 per cent.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2 per cent. That followed June’s 0.1 per cent gain, which was the smallest rise since July 2013. Many tenants have entered into forbearance agreements with landlords. Demand for rental accommodation has also slowed, suggesting underlying inflation could remain benign for a while.
President Donald Trump last weekend signed an executive order stopping evictions from rental housing that has federal financial backing.
Consumers also paid more for health care in July, with prices rising 0.4 per cent after the same gain in June. The cost of visits to doctors increased 0.7 per cent and prices for hospital services rose 0.2 per cent. The cost of prescription medication, however, fell 0.2 per cent. — Reuters
