July Consumer Price Index Rises to 5.4%

The Labor Department reported Wednesday that the Consumer Price Index rose 5.4% in July compared to a year earlier. The increase is on par with June’s figure, tying the record for the largest increase since August 2008. 

RELATED: Runaway Inflation Is Wiping Out Gains From Higher Wages

Consumer Price Index Rose by 5.4%

While the prices of goods and services continued to rise, economists say that the rise is in line with what they expected. Pent-up demand for travel and outdoor dining kept inflation up, but the rate of increase is within manageable limits.

In fact, the Consumer Price Index rose half a percentage point on a month-over-month basis. This rate is the same as what economists surveyed by Dow Jones expected. 

Core inflation, which does not incorporate energy and food numbers, rose by 0.3% last month. This is less than the expected 0.4% rate and is well below the 0.9% rate recorded in June.

Over the last year, core inflation is up 4.3% compared to last year.  It’s 0.2% lower than June’s 4.5% rate. Many economists look at the core consumer price index as the more reliable indicator. This is because it doesn’t factor in frequent and wild fluctuations in oil and food prices.

Decrease In Inflation Rates In Some Sectors

Economists also reported sharp decreases in inflation rates in sectors that recently reported price increases. This includes used car and truck prices, whose prices skyrocketed during the spring as Americans geared for their annual trips. The sector gained only 0.2%, a stark difference compared to the more than 10% increase in June.  

Meanwhile, apparel prices remained flat after a 0.7% increase in June. Also, transportation services prices actually declined, even as they previously reported a 1% increase at the close of the second quarter. 

Inflation Is Transitory

The Federal Reserve remains watchful of inflation updates as it tries to maintain stability on prices and provide steady employment. Fed Chairman Jerome Powell insisted that the recent bouts of high prices remain transitory. Powell, along with other Fed officials, said that the prices won’t continue rising, especially at the current rate. 

Seema Shah, the chief strategist at Principal Global Investors, echoed the Fed’s assessment.  “Today’s CPI data should help assuage investor fears that the Fed is too laid-back about inflation pressures.

The details of the data release suggest some easing in the reopening and supply-shortage drove boost to prices and tentatively suggests that inflation may have peaked. Investors in the transitory camp will feel slightly vindicated.”

Interest Rates Still Near Zero

In addition, the Fed kept interest rates near zero. At the same time, it continues to prop up financial markets with monthly infusions of $120 billion worth of bonds. However, even Fed officials acknowledge that they are bound to raise interest rates eventually. In fact, Vice-Chair Richard Clarida started giving out forecasts for eventual interest-rate increases.

The consumer price index measures changes in how much American consumers pay for everyday goods and services including groceries, gasoline, clothes, restaurant meals, haircuts, concerts, and automobiles.

Due to a rise in consumer spending due to the economy reopening, CPI and other index rates are rising. As vaccination rates increase, more and more  American consumers are going out to spend money. In fact, consumer spending spiked 11.8% during the second quarter. This is the second-fastest rate of increase since 1952.

Watch the CNBC Television video reporting that July's consumer price index is up 0.5%, meeting estimates:

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Given the new consumer price index results, do you see inflation rates going down sooner? Or, do you think inflation is here to stay for the time being?

Let us know what you think about prices for American goods and services. Share your comments in the comments section below.