Inflation Keeps Rising, But for How Long?

Inflation remained elevated in July and analysts expect the consumer price index to remain above 5% on a year-over-year basis at the end of the third quarter, Bloomberg reported after the U.S. Bureau of Labor Statistics released July Consumer Price Index figures.

The Bureau of Labor Statistics reported that the consumer price index increased 0.5% in July after rising 0.9 percent in June.

The report adds that, over the last 12 months, prices increased 5.4%. The housing, food, energy, and new vehicle indexes all rose in July and contributed to the monthly all items seasonally adjusted increase.

According to Bloomberg’s latest monthly survey of economists, ongoing supply chain strains and labor market shortages are not only holding back economic growth but also raising costs for companies. “Demand outstripping supply not only means higher inflation but missed growth opportunities,” said James Knightley, chief international economist at ING.

“Inflation is likely to be more persistent and pervasive than predicted by the Federal Reserve,” Knightley added.

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The food index increased 0.7 percent in July as five of the major grocery store food group indexes rose, and the food away from home index increased 0.8 percent. During the last 12 months, food prices rose 3.4 percent, compared to a 2.4 percent raise for the period ending June.

Meanwhile, the energy index rose 1.6% in July, as the gasoline index increased 2.4% and other energy component indexes also rose. The index for all items less food and energy rose 0.3% in July, after rising 0.9% in June.

National Retail Federation Chief Economist Jack Kleinhenz warned that inflation expectations “can become self-fulfilling” with workers demanding higher wages if they expect prices to go up, forcing employers to raise prices and creating a continuous cycle. A University of Michigan survey last month found consumers expect inflation of 4.8 percent over the next year, the highest since a spike in oil prices in 2008, but a Federal Reserve index predicts only 2.75 percent.

Food Price Index Figures and the Impact on Inflation

  • The food index increased 0.7 percent in July after rising 0.8 percent in June, said the Bureau of Labor Statistics. The index for food at home also rose 0.7 percent, as the index for meats, poultry, fish, and eggs continued to increase. This index rose 1.5 percent in July; this was its seventh monthly increase in a row and followed a 2.5-percent increase in June.
  • The index for cereals and bakery products, which declined in June, rose 1.2 percent in July, its largest 1-month increase since April 2020. The index for other food at home rose 0.8 percent in July, also the largest monthly increase since April 2020.
  • The index for nonalcoholic beverages rose 0.7 percent in July, and the index for dairy and related products advanced 0.6 percent.
  • The index for fruits and vegetables was the only major grocery store food group index to fall in July, declining 0.9 percent after rising 0.7 percent in June. The index for fresh fruits fell 1.8 percent over the month.
  • The food away from home index rose 0.8 percent in July, its largest monthly increase since February 1981, adding pressure to inflation. The index for limited-service meals rose 1.0 percent in July, and the index for full-service meals increased 0.6 percent.
  • The food at home index increased 2.6 percent over the past 12 months. All six major grocery store food group indexes rose over the span, with increases ranging from 1.1 percent (nonalcoholic beverages) to 5.9 percent (meats, poultry, fish, and eggs).
  • The index for food away from home rose 4.6 percent over the last year. The index for limited-service meals rose 6.6 percent over the last 12 months, and the index for full-service meals rose 4.3 percent. Both, 12-month increases were the largest in the history of the respective series, which were first published in 1998.