Consumer Price Index Shows Inflation Cooling in July to 8.5% Primarily From Decreasing Gas Prices

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Inflation finally started to cool down in July, giving analysts and investors a small sense of relief. The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) on August 10, and the all-items index for the 12 months ending July decreased to 8.5%, driven largely by falling gas prices.

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This was lower than expectations, as economists surveyed by The Wall Street Journal expected the CPI — which measures what consumers pay for goods and services including clothes, groceries, restaurant meals, recreational activities and vehicles — to have decreased to 8.7% in July, down from 9.1% in June, which was the fastest pace of inflation since November 1981.

“This is a good number. If this is truly the peak in inflation, this could officially signal an economic tide shift that both consumers and investors can appreciate,” Rusty Vanneman, chief investment strategist at Orion Advisor Solution, told GOBankingRates, “This also fortifies the good news that both consumer-based and market-based expectations of future inflation are also falling.” 

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“That said, the absolute level of inflation remains painfully high and the risk of being a false peak remains, especially given that two important drivers of inflation are still troublesome: wages and housing,” he continued.

In July, the energy index fell 4.6%, following the 7.5% increase in June, bringing the index rising to 32.9% over the past 12 months. The gasoline index fell 7.7% in July, following an 11.2% increase in June. The index increased 44% over the past 12 months.

 In addition, the index for natural gas also declined in July, falling 3.6%. However, the electricity index increased in July, rising 1.6%, according to BLS data.

John Catsimatidis, chairman and CEO of Red Apple Group — which owns and operates United Oil Refinery and 400 gas stations — as well as chairman and CEO of Gristedes & D’Agostino’s Supermarkets, told GOBankingRates that the economists are reflecting June and July’s numbers.

“Being an operator, I am reflecting on what is going on today, in August. I’ve said that the Fed should not force a recession on the American people and should be more cautious in raising interest rates,” he said. “Consumption of oil is down, and prices of crude and gasoline are down, which led to the reduced inflation numbers this month. I expect food prices to stabilize over the next 60 days. The Fed was patient during the COVID period, I urge this same caution in Q3.”

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The index for all items less food and energy increased 0.3% in July, up 5.9% over the year, the BLS said. 

The food index increased 1.1% in July, representing the seventh consecutive monthly increase of 0.9% or more. And the food at home index rose 1.3%, a 13.1% increase over the last 12 months, the largest 12-month increase since the period ending March 1979, the BLS noted.

The BLS also reported that in July, all six major grocery store food group indexes increased.

The index for dairy and related products increased 1.7% over the month; the index for meats, poultry, fish, eggs, and fruits and vegetables rose 0.5% in July after declining in June.

Kevin Rendino, Chairman and CEO at 180 Degree Capital, told GOBankingRates that the new data represented “more of the same, with a slight cooling off from elevated highs.”

“The Fed will not alter its strategy of seeing through a cooling off inflation, but this should give them reason to take a breath and give them some confidence that their actions are helping,” Rendino said. “It is our belief that in the big picture,  inflation is peaking or has peaked. To be clear, a month isn’t a trend but this is a decent start.”

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Among the indexes that increased the most for the month, were those for shelter, medical care, motor vehicle insurance, household furnishings and operations, new vehicles and recreation.

The shelter index increased 0.5% in July, a slight decrease from June’s 0.6% figure, while the rent index rose 0.7%. Meanwhile, the index for lodging away from home continued to decline, falling 2.7% in July.

The medical care index rose 0.4% in July, the index for motor vehicle insurance continued to increase, rising 1.3% in July and the index for household furnishings and operations rose 0.6%.

In addition, the new vehicles index also increased 0.6% in July, while the recreation index rose 0.3% over the month.

The BLS added that the indexes that declined in July, included those for airline fares, which fell sharply, decreasing 7.8%;  used cars and trucks, which fell 0.4%; communication, which also fell 0.4%; and apparel, falling 0.1% after rising the prior two months.

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David Russell, VP of Market Intelligence at TradeStation Group, told GOBankingRates that “inflation was hot. Now it’s not.”

“Price increases hit the market like a tsunami early this year, and now they’re receding like a wave from the beach, trickling back a little bit at a time. The slide in energy obviously helped but we also saw shelter tick down and even used vehicles ease,” Russell said. “This report is positive in almost every way, showing following Powell’s softer stance in July wasn’t a head-fake. This relieves pressure on the U.S. dollar and the yield curve. The market is looking out a few months and seeing a kindler and gentler Fed. It creates a rare environment that could help both technology stocks and financials – a giant slap in the face to the bears.” 

“This report means Jerome Powell can take his boot off the neck of the U.S. economy,”  he concluded.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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