US CPI edges past forecasts in July

The cost of living in the US edged past forecasts last month as food and energy prices continued advancing at a rapid clip.

According to the Department of Labor, the consumer price index jumped 0.5% month-on-month, keeping the annual rate of gains at 5.4% (consensus: 5.3%), the same as in June.

Food and energy prices both increased by 0.7% on the month.

At the core level meanwhile, CPI was up by 0.3% on the month and 4.3% on the year (consensus: 4.3%).

New vehicle prices continued rising at a brisk pace, by 1.7% on the month.

Used car and truck prices however were up by only 0.2% in comparison to the month before, following three months of very sharp gains amid a spike in demand from Americans eager to avoid public transport.

Commenting on the latest CPI figures, Kathy Bostjancic at Oxford Economics noted the moderation in the monthly rate of price gains, which allowed inflation to stabilise in annual terms.

In her opinion, June marked the peak in the annual rate of inflation because the strong base effects were subsiding and wholesale prices for used cars and trucks had moderated "greatly".

Bostjancic added: "That said, price increases stemming from the reopening of the economy and ongoing supply chain bottlenecks will keep the rate of inflation elevated and sticky as supply/demand imbalances are only gradually resolved.

"While we share the Fed's view that this is isn't the start of an upward wage-price spiral, we look for inflation to remain persistently above 2.0% through 2022."

Andrew Hunter at Capital Economics was a bit more restrained in his take however.

Yes, a more moderate 0.3% rise in core CPI in July shows that "the transitory burst of rising prices linked to reopening is fading and that, after falling to 4.3% from 4.5% in June, core inflation may now have peaked.

"But we still doubt that it will fall back as quickly over the coming quarters as Fed officials are hoping for."

Hunter thus noted the continuing surge in bar and restaurant prices which he said "appears to be a clear sign that labour shortages and rising wages are feeding through."

He also expected shelter inflation to continue accelerating, another sign that "more lasting" price pressures were continuing to build.