Americans are feeling more pain in their wallets as prices for consumer goods in the United States continued to rise in July, but the increases were not as steep as the previous month, signalling that the nation may have seen the worst of the blistering inflation that has characterised the economy’s recovery from COVID-19.
Prices for the all items basket of consumers goods and services tracked by the US Bureau of Labor Statistics rose 0.5 in July from the previous month, as prices for food, energy, new vehicles and shelter continued to march upward.
But prices in July did not climb as steeply as they did in June when they rose 0.9 percent from the month before.
During the past 12 months, prices in the all items index rose 5.4 percent in July. That is unchanged from June which saw the sharpest annual increase since 2008.
Americans have been shelling out more for food, cars, dining out and other goods and services this year as climbing vaccine rates, COVID restriction rollbacks, and government stimulus money work in tandem to coax consumers out of pandemic hibernation. To cater to that soaring demand, businesses have geared up operations en masse, causing bottlenecks to form for raw materials and labour.
Scarcity triggers inflations and as prices for businesses go up, those increases are passed on to consumers.
A little bit of inflation is a good thing because it telegraphs to consumers that they should buy goods and services now rather than hold off in expectation of prices dropping – which keeps an economy humming along. But too much inflation can be deeply destructive if a vicious upward price spiral takes hold, prompting the US Federal Reserve to increase interest rates sharply and potentially derail the nation’s economic recovery from COVID-19.
For months, Fed Chair Jerome Powell and his fellow policymakers have insisted the this year’s price rises are a temporary consequence of the economic reopening, and that eventually, inflation will fall back towards its target rate of 2 percent.
But the pain of higher prices is not felt equally. Low-income households are in a worse position to absorb price increases – especially for essential purchases like food, energy and shelter that cannot be put off in the hope of better bargains to come – because it eats up a larger share of their income.
Strip out food and energy, and the so-called “core index” for consumer prices rose 0.3 percent in July, after increasing 0.9 percent the previous month. During the past 12 months, core consumer prices climbed 4.3 percent in July after rising 4.5 percent in June.
“The more modest 0.3% m/m rise in core consumer prices in July indicates 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,” Andrew Hunter, senior US economist at Capital Economics wrote in a note to clients on Wednesday.