Inflation increased 0.5% in July, down from June’s 0.9% rise. The Labor Department reports that the Consumer Price Index for the last 12 months increased 5.4%, the same as in June. Consumers felt inflation the most when they bought a new car, put gas in it, went to a restaurant, or tried to buy or rent a home.
Food prices were up 0.7% last month, led by an increase in restaurant prices. The energy
index rose 1.6% in July, with the gasoline index increasing by 2.4% and other energy component indices also rising. The CPI, without the volatile food and energy components, rose 0.3%, significantly less than the 0.9% increase in June.
The cost of new cars rose 1.7% last month and is up 6.4% year-over-year. Used car prices rose by just 0.2% in July but are up a record 41.7% over the last 12 months. Both increases are related to shortages caused by the pandemic.
Americans increasingly took part in recreational activities in July, at least before the Delta variant began to spread. When they did, they paid more for their fun. The cost of recreation rose 0.6% last month after rising 0.2% in June.
Health care costs are continuing to climb after pausing in May and June. The cost for physicians’ services rose 0.4%, and hospital services increased 0.5%.
Rising prices were expected
Economists have expected inflation to rise as the economy reopens. After more than a year of the pandemic, there is pent-up demand for both products and services. A number of supply chain bottlenecks have led to an imbalance between supply and demand.
The Biden administration this week moved to head off growing concern among moderate Democrats about the pace of rising prices. National Economic Council Director Brian Deese told lawmakers that administration spending policies will lead to growth and temper rising prices.
At the same time, President Biden this week asked OPEC to increase oil production to slow rising gas prices. In a memo obtained by CNBC, National Security Advisor Jake Sullivan said the world’s oil producers should do more to support a worldwide economic recovery.