Inflation in the United States edged up in July after 12 straight months of slowdowns.
The inflation data the government reported Thursday showed that overall consumer prices was up 3.2% from a year earlier. That was up from a 3% annual rise in June, which is high… but still was the lowest rate in more than two years. The latest figure remained below last year’s peak of 9.1%, well above the Fed’s 2% inflation target.
Thursday’s price data will be among the key barometers the central bank will weigh in deciding whether to continue raising interest rates. In its drive to tame inflation, the Fed has raised its benchmark rate 11 times since March 2022 to a 22-year high.
Excluding volatile food and energy costs, so-called core inflation matched the smallest monthly rise in nearly two years, a sign that the Federal Reserve’s interest rate hikes have continued to work.
Overall prices, measured on a month-to-month basis, rose 0.2% in July; roughly 90% of it reflected higher housing costs. Excluding shelter, Paul Ashworth of Capital Economics calculated that core prices actually fell 0.1% from June to July.
Food prices, which have pressured Americans’ budgets for more than two years, rose a mild 0.2% from June to July. Eggs, meat, beer and dairy products all declined in price, though food is still up 4.9% over the past 12 months. Also falling in July were prices of televisions, audio equipment and pet food.
Energy costs rose just 0.1%. Higher gasoline prices were offset by falling electricity prices.
Used-vehicle prices fell for a second straight month, dipping 1.3% from June and 5.6% from a year ago. Those prices had surged last year as a shortage of computer chips disrupted production of new vehicles, forcing more buyers into the used market. The chip shortage has eased, and new-car production has rebounded, thereby reducing demand for used cars and trucks.
Economists say that in the Fed’s fight to conquer inflation, the easy progress has likely already been achieved. Gasoline prices, for example, though liable to bounce around from month to month, have already plunged from a peak national average of more than $5 a gallon, which was reached in June of last year after Russia’s invasion of Ukraine.
Now, the Fed faces a daunting problem: Inflationary pressures in service businesses — restaurants, hotels, entertainment venues and the like — where wages represent a substantial share of costs. Worker shortages have led many of these services companies to sharply raise pay.
Last week, for example, the Labor Department reported that average hourly wages rose 4.4% in July from a year earlier, more than expected. To cover their higher labor costs, companies have typically raised their prices, thereby fueling inflation.
Another factor working against continued declines in year-over-year inflation rates is that prices soared in the first half of last year before slowing in the second half. So any price increase in July would have the effect of boosting the year-over-year inflation rate.
Still, economists caution against reading too much into one month of numbers.
Despite chronic concerns about higher labor costs, one closely watched measure of wages and salaries — the Labor Department’s employment cost index — grew more slowly from April through June. Excluding government jobs, employee pay rose 1%, less than the 1.2% increase in the first three months of 2023. Compared with a year earlier, wages and salaries grew 4.6%, down from a year-over-year increase of 5.1% in the first quarter.
Many Americans continue to feel under pressure from higher prices.
“There are some things you can stop buying or slow down on buying,’’ said Mark Dye of Port St. Lucie, Florida. “The cost of junk food has gone outrageously high. It’s $5, $6 for a bag of chips. And I just think that is ridiculous. And then we pay even more for the healthy stuff.”
The Associated Press contributed to this article.