US Consumer Prices show 5.4% Annual increase in July 2021

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US consumer price gains remained hot as the economic recovery continued to take hold. The Labor Department said Wednesday that consumer prices rose 5.4% year over year in July, matching the prior month’s gain was the fastest since August 2008. Prices increased 0.5% last month, slowing from June’s 0.9% increase. Analysts surveyed by Refinitiv were expecting a 0.5% gain. Core prices, which exclude food and energy, rose 0.3% month over month and 4.3% annually. In June, core prices increased 0.9% and 4.5%, respectively. The chief strategist at Principal Global Investors Seema Shah said, “While the data should reassure markets that inflation isn’t on a relentless upward trend, make no mistake, this inflation report is still hot”.

However, prices for shelter, food, energy, and new vehicles all increased in July. The food index rose 0.7% while the energy index rose 1.6%, buoyed by a 2.4% gain in gasoline prices. Used car prices rose 0.2% in July, far less than the 10.5% spike in June. In the last report, used car price gains accounted for more than one-third of the increase. The Federal Reserve has insisted the recent price gains are transitory and that those increases will mitigate once production issues are resolved. Fed Chairman Jerome Powell has admitted that timing is uncertain. Seema said, “The Fed should consider this as yet more evidence of substantial progress towards their goals, and surely a deep-dive discussion into tapering will be on the top of their agenda at the September FOMC meeting”.

California Agriculture Secretary Karen Ross said it is possible food prices could increase due to the worsening conditions. However, since the growing season is far from over, she said it could be too early to tell how much prices could rise and how much of the supply could be impacted. Ross said, “I think it’s too early to say this could be lasting. It could be a surge and then we’ll taper off”. Hundreds of thousands of acres have also been burned by the wildfires in the West. Ross said the current drought conditions are similar to ones in 2015, where the state lost billions of dollars in potential profit. She added, “Over a three-year period of time, over $5 billion in losses of crops that weren’t being produced, marketed and harvested”. The US Department of Agriculture reported that beef prices could rise by another 4% by the end of the year and fresh fruit prices could rise by another 6%.