Sylvain Bukasa of Dunbarton, N.H., shows vegetables grown on his farm at Fresh Start Food Hub & Market in Manchester, N.H., June 15, 2023. The cost of food increased in July, according to the Labor Department's consumer price index (CPI)inflation report. (AP/Charles Krupa)
The annual inflation rate in the U.S. accelerated to 3.2 percent in July, up from 3 percent in June, ending 12 consecutive months of declines.
The consumer price index (CPI) for shelter was by far the largest contributor to the monthly increase, accounting for more than 90 percent of the increase, according to an Aug. 10 report by the Department of Labor. The CPI measures the change in prices paid by consumers for goods and services.
The food index increased 0.2 percent in July after increasing 0.1 percent in June. Auto insurance also contributed to the CPI increase in July, along with the cost of education and recreation.
By contrast, cost decreases were seen in airline fares, used cars and trucks, medical care, and communication.
Despite the first monthly price acceleration in a year, the Dow Jones Industrial held onto gains and two other major U.S. indexes climbed on the news. “Today’s moves ended up looking like other recent CPI days—something of a non-event for stocks,” the Wall Street Journal reported on Aug. 10.
The S&P 500 rose more than 19 percent in the first seven months of 2023. The Dow rose more than 7 percent, and the tech-heavy Nasdaq Composite rose 44 percent.
A year ago, inflation had started to fall from its peak of 9.1 percent — a 40-year high. Prices in July 2023 accelerated a seasonally adjusted 0.2 percent for the month.
“While it would be fair to describe prices as still relatively high in places such as shelter and used cars, we are witnessing a rate of change that is encouraging to consumers, as well as to Federal Reserve policymakers,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock, in a CNBC report.
The most recent data show that while inflation has come down, it is still higher than the 2 percent target set by the Federal Reserve and high enough that interest rates cuts are unlikely anytime soon.
The Fed has raised benchmark interest rates 11 times since March 2022, and central bank officials are expected to take a break in September, CNBC reported.
Philadelphia Fed President Patrick Harker and New York Fed President John Williams both suggested they could see the rate hikes ending. However, Fed Board Governor Michelle Bowman said she expects more increases. Governor Christopher Waller also indicated the need for more rate increases.
“While inflation is moving in the right direction, the still-elevated level suggests that the Fed is some distance from cutting rates,” said Seema Shah, chief global strategist at Principal Asset Management. “Indeed, disinflation is unlikely to be smooth and will require some additional economic pain before the 2% target comes sustainably into view.”
Sung Won Sohn, chief economist at SS Economics and professor of economics and finance at Loyola Marymount University, said, “It is not quite ‘mission accomplished’ yet, but significant progress on the inflation front has been made. On balance, the inflation picture has improved significantly. The Federal Reserve will stop raising the interest rate soon.”
Inflation has not yet appeared to affect U.S. economic growth. GDP rose by 2 percent in the first quarter and 2.4 percent in Q2 of 2023, and the Atlanta Fed is looking at Q3 growth of 4.1 percent. Unemployment is close to a 54-year low.
More economists are beginning to expect the U.S. can avoid a recession despite the aggressive Federal Reserve rate hikes. Goldman Sachs, JPMorgan Chase and Bank of America all recently forecast that a contraction seems less likely.
However, payroll gains have been slowing and Americans are relying on credit cards and savings at record rates. Total credit card debt bypassed $1 trillion for the first time in 2023, the New York Fed reported.
Some investors say that the U.S. economy could tip into a recession later this year.
“Our view all along has been that we’re likely to have a recession that would begin sometime in the second half of this year, and we actually still think that’s likely,” said David Donabedian, chief investment officer at CIBC Private Wealth US, in a CNN interview.
“There’s no question when you look at a lot of the economic data — it says…the economy is not in recession,” Donabedia continued. “The economy is solid…things like the GDP report, like in sales or consumer sentiment and others. But those give you an appraisal of how the economy is performing today, or more accurately, how it was performing last month. It’s not predictive.”
Photo: Sylvain Bukasa of Dunbarton, N.H., shows vegetables grown on his farm at Fresh Start Food Hub & Market in Manchester, N.H., June 15, 2023. The cost of food increased in July, according to the Labor Department’s consumer price index (CPI) report. (AP/Charles Krupa)
