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Inflation Slows to Lowest Level Since 2021, But Will its Downward Trajectory Continue?
August 13, 2024
Inflation continued its slow descent in July, with the annual inflation rate falling to the lowest level in more than 3 years. While the report makes it all but certain that the Federal Reserve will cut interest rates in September, “sticky” inflation in some areas is creating cross-currents that call inflation’s path toward the Fed’s 2% into question.
The consumer price index (CPI), a broad-based measure of prices for goods and services, was up 0.2% in July from the month before and up 2.9% over the past 12 months, according to the Bureau of Labor Statistics. The monthly increase was in line with economist expectations, and the annual rate was slightly lower than anticipated. Economists polled by Dow Jones had expected increases of 0.2% and 3%, respectively.
The “core” CPI, which excludes volatile components like food and energy and is considered to be a better indicator of inflationary pressure, also increased 0.2% for the month and 3.2% annually. Both figures were in line with expectations.
July’s annual increase is the slowest since March 2021, and the core increase is the slowest since April 2021.
Stubbornly persistent housing inflation was responsible for roughly 90% of the month’s increase. The index’s shelter component increased 0.4% from the month before and was up 5.3% annually, defying Fed expectations that housing inflation ease.
In addition to the persistent housing inflation, some cross-currents are giving many analysts pause. Vehicle prices continued to decline, with used car and truck prices down 2.9% for the month and 10.9% from a year ago. However, auto insurance rates continue to surge, jumping another 1.2% last month, and are up 18.6% on an annual basis.
On the other hand, some components of the index, such as medical care services, apparel, and core commodity prices are seeing outright deflation. A separate report released earlier in the week also showed that producer prices, a proxy for wholesale inflation, increased by just 0.1% in July and were up 2.2% annually. These suggest further softening of inflation in the future, but how quickly we hit the Fed’s 2% target remains to be seen.
