U.S. inflation may have peaked as consumer price increases slowed in July

U.S. consumer prices increases slowed in July even as they remained at a 13-year high on an annual basis, but there were tentative signs inflation has peaked as supply-chain disruptions work their way through the economy.

The consumer price index increased 0.5 per cent last month after climbing 0.9 per cent in June, the Labor Department said on Wednesday. In the 12 months through July, the CPI advanced 5.4 per cent. The drop in the month-to-month inflation rate was the largest in 15 months.

Excluding the volatile food and energy components, the CPI rose 0.3 per cent after increasing 0.9 per cent in June. That was the smallest gain in 4 months and the first deceleration in the so-called core CPI since February.

The core CPI rose 4.3 per cent on a year-on-year basis after advancing 4.5 per cent in June. Annual inflation rates have been lifted by the fading out of last spring’s weak readings from the CPI calculation but those so-called base effects are leveling off.

Economists polled by Reuters had forecast the overall CPI would rise 0.5 per cent and the core CPI would rise 0.4 per cent.

Prices for shelter, food, energy, and new vehicles all increased in July. The index for used cars also increased but was much smaller than the surge in prior months.

“At the end of the day this is a more moderate reading than expected, especially on the core,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

The swiftness of the economic recovery has caused a mismatch between supply and demand in a few key sectors as businesses try to rebuild their inventories and overcome supply chain hurdles
that were caused by the COVID-19 pandemic.

U.S. Treasury prices slipped in the wake of the CPI data. S&P 500 futures rose.

Low interest rates and nearly $6 trillion in government relief have also bolstered demand, causing price pressures to build.

by Reuters