US consumer price inflation up 1.8 per cent in July

US consumer price inflation up 1.8 per cent in July

Airline tickets are becoming more expensive again. So are fruits and vegetables. US inflation figures released on Tuesday showed broad based increases across consumer prices in July, adding more fuel to the debate over how vigorously the Federal Reserve might loosen monetary policy.

The consumer price index, a measure of growth in prices for common goods such as food, housing and fuel, rose 0.3 per cent in July, right in line with estimates, and higher than June’s month-on-month growth of 0.1 per cent.

Over the past year, prices have grown at 1.8 per cent, just above estimates of a 1.7 per cent year-on-year rise.

Core CPI, a measure of inflation that removes the more volatile costs of food and energy, rose 2.2 per cent over the past year, the strongest increase since December 2018.

The increase in prices was “broad based,” according to the Bureau of Labor Statistics, which produces the index. The price of housing increased, as it did for medical care, household furnishings, clothing and personal care. Fruit and vegetables rose 0.3 per cent from June, after several months of declines. Volatile airline fares rose 2.3 per cent in July after dropping in June.

Treasury yields initially rose for both the 10-year note and the two-year bill on the news, although the market moves were quickly subsumed by reaction to news that the US will delay the imposition of some tariffs on goods from China.

The Fed has been watching all measures of inflation closely for weakness. Since the recession, and particularly over the past year, the bank has been increasingly open about its failure to generate more inflation. Its decision last month to lower rates by 25 basis points rested in part on the recognition that inflation did not seem to be an immediate threat, leaving the Fed more room to act.

Andrew Hunter, senior economist for Capital Economics, wrote that inflation was “unlikely to prevent further interest rate cuts”.

The central bank’s preferred measure of inflation, core personal consumption expenditures produced by the Bureau of Economic Analysis, has remained below the target rate of 2 per cent for almost all months since 2012, and has been either dropping or flat since late 2018.

Joshua Shapiro, chief US economist at Maria Fiorini Ramirez, was hesitant to call a recovery in inflation. “We do not believe that the latest two core readings represent the start of a sustained acceleration,” he said, “but rather are probably a correction of some earlier results which understated inflation pressures.”

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