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Inflation leveled off in July

The Consumer Price Index was unchanged from June

Inflation concept
Photo (c) triloks - Getty Images
Rising prices slowed in July as consumers paid less for some things, including used cars and gasoline. The Labor Department reports that its Consumer Price Index (CPI) in July was unchanged from the month before, when the index rose by 1.3%.

Ironically, the biggest source of relief for consumers came at the gas pump. The gasoline index fell 7.7% and offset increases in the food and shelter indexes. The overall energy index was down 4.6% in July.

But consumers continued to spend more on food. The food index rose 1.1% in July. Once again, food purchased at stores and consumed at home led the increase, rising by 1.3%. Food consumed away from home rose about half as much, 0.7%.

Consumers also paid more for new vehicles. New car prices rose 0.6% in July, while used car prices actually fell by 0.4%.

Consumers are changing their shopping habits

The U.S. Bureau of Economic Analysis (BEA) recently reported on consumer spending in the face of growing inflation. It found that while consumer spending exceeded expectations, the impact of inflation on low-income Americans is increasing.

Dan North, senior economist at trade credit insurer Allianz Trade North America, says months of rising prices have changed consumers’ shopping habits. They now appear to be moving from expensive items to cheaper ones.

“They can switch from brand name items to bottom shelf items at lower price points,” North told ConsumerAffairs. “For instance, consumers can forego items such as Tide detergent made by the consumer products giant Procter & Gamble, to a cheaper house brand detergent.”

To combat this development, North expects consumer product manufacturers to continue employing “shrinkflation,” in which they offer the same product at the same price but for a smaller amount.

“First, we saw a pullback in high-priced and high-ticket items,” Shmuel Shayowitz, president and chief lending officer at Approved Funding, told us. “Now we are seeing consumers scrambling to deal with high balance credit cards and debts.”

The July CPI report was better than expected, but it’s hard to tell how it will affect Federal Reserve policymakers, who have been raising interest rates in an effort to dampen inflation. Over the last 12 months, the inflation rate is 8.5%, which is down from 9% in June.

Federal Reserve Chairman Jerome Powell has said policymakers want to reduce the nation’s inflation rate to no more than 2.5%.

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