Although still high, the 0.5% increase in July comes after a 0.9% increase in June.
Consumer prices continued to climb in July, further fueling concerns about inflation as the economy rebounds from the COVID-19 shock.
The consumer price index, often viewed as a measure of inflation, has climbed 5.4% in the past 12 months, the Bureau of Labor Statistics said on Wednesday. This is the same pace reported in June, which is the largest 12-month increase since August 2008.
The index rose 0.5% in July alone, the BLS said, stabilizing somewhat from the 0.9% increase seen in June.
“This month’s increases have been relatively moderate compared to what we’ve seen over the past few months, and that’s largely because the low bar from a year ago is starting to drop,” Greg McBride, chief financial analyst at Bankrate, told ABC News on Wednesday.
“What I mean by that is that in the second quarter of last year, when the economy was stuck, price levels actually went down,” he added. “It overstated the year-over-year increase when we looked at it this year.”
McBride said there was no doubt prices were going up and inflation concerns were valid, adding that “there is more evidence that this could prove temporary.”
Compared to pre-pandemic data from two years ago, McBride said the annualized rate would drop to 3.1% from 5.4% more concerning.
âThink of a baseball player who usually hits 30 home runs a year, then a year he hits 10 home runs, then the next year he comes back and he hits 30 home runs again,â he said. “Looks like he’s tripled his production – he didn’t. He just got back to normal.”
The so-called core index, which includes everything except the more volatile food and energy indices, climbed 0.3% in July and 4.3% in the past 12 months, according to the latest data. The food index, meanwhile, rose 0.7% in July and 3.4% in the past 12 months. The energy index climbed 1.6% last month, with the gasoline index alone rising 2.4%.
Used car prices, which have soared in recent months due to a shortage of chips, stabilized somewhat in July. Used car prices rose 0.2%, a significant respite from the 10.5% increase in June.
As consumer demand rebounded as the economy suddenly began to reopen, many companies, spanning multiple industries, reported supply chain bottlenecks and rehiring issues.
âLabor shortages and supply chain constraints have been a huge factor in driving up prices and underscore the transitional argument,â McBride said. “This debate on is it transient or is it more sustained is there one that will continue until the remainder of 2021.”
Federal Reserve Chairman Jerome Powell also downplayed inflation fears in testimony to lawmakers in May.
âInflation has risen dramatically in recent months,â Powell said, according to his prepared remarks. “This reflects, in part, the very low readings at the start of the pandemic that are not factored into the calculation; the pass-through of past oil price increases to consumer energy prices; the rebound in energy prices. spending as the economy continues to reopen; and the compounding factor of supply bottlenecks, which have limited how quickly production in certain sectors can respond in the short term. “
As these transient factors subside, Powell said inflation is expected to come down again.