What July's Inflation Numbers Suggest Is Coming

Prices for US consumers rose last month, but at the slowest pace since February, a sign that Americans may gain some relief after four months of sharp increases that have imposed a financial burden on the nation's households. The key numbers from Wednesday's report from the Labor Department, per the AP:

• Consumer prices jumped 0.5% from June to July, down from the previous monthly increase of 0.9%. They've increased a substantial 5.4%, though, compared with a year earlier; that year-over-year inflation rate matches June's 5.4% increase as the largest annual jump since 2008. But excluding volatile energy and food prices, so-called core inflation rose 4.3% in the past year, down slightly from 4.5% in June—the fastest pace since 1991.

• Encouraging numbers: At the same time, some recent drivers of the inflation surge slowed last month. The price of used cars, which had soared over the past three months, ticked up just 0.2% in July. Airline fares, which had been spiking, actually declined 0.1% in July.
• Optimistic quote: "We believe June marked the peak in the annual rate of inflation," said Kathy Bostjancic, an economist at Oxford Economics. "That said, price increases stemming from the reopening of the economy and ongoing supply-chain bottlenecks will keep the rate of inflation elevated."
• Less optimistic quote: "The July data suggest that the initial burst of stronger inflation is now fading, but it is still much too soon to dismiss the risks of a more prolonged period of higher inflation over the coming years," said Andrew Hunter, an economist at Capital Economics.
• President Biden and Fed Chair Jerome Powell's take: They believe the pickup in inflation, which well exceeds the Fed's 2% annual target, will prove temporary because it stems mainly from supply shortages resulting from the sudden shutdown—and swift reopening—of a $20 trillion economy.
• The AP's take: "July's inflation report lent some support to that view." The cost of auto rentals, for example, skyrocketed nearly 75% in the past year after rental companies sold off much of their fleets during the pandemic to raise cash. Yet last month, vehicle rental prices fell nearly 5%.
• Where rising costs may persist: Restaurant prices jumped 0.8% in July, the largest increase since 1981, a sign that higher wages and rising food costs are being passed on to consumers. New car prices, which increased 1.7% in July, have leapt 6.4% in the past year, the largest year-over-year increase since 1982. A shortage of semiconductors has limited automakers' output, and there's little sign that it's easing yet.
• The markets' response: Fox Business notes the Dow and S&P 500 rose to new records on the news, gaining 0.45% and 0.24%, respectively.

(More inflation stories.)