U.S. Inflation Rate Accelerates, but Economists Urge Calm

Consumer prices in the U.S. saw an increase of 3.2% for the 12 months ending in July, marking a slight rise from June's 3% rate, as revealed by the latest Consumer Price Index report

by Faruk Imamovic
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U.S. Inflation Rate Accelerates, but Economists Urge Calm

Consumer prices in the U.S. saw an increase of 3.2% for the 12 months ending in July, marking a slight rise from June's 3% rate, as revealed by the latest Consumer Price Index report. This might seem like the start of a concerning trend, especially considering it's the first acceleration of the annual inflation rate we've seen in a year.

However, economists are urging the public not to leap to conclusions.

Understanding the Numbers

One of the key voices cautioning against a knee-jerk reaction is Julia Pollak, the chief economist for ZipRecruiter. "Don’t be fooled by the uptick in year-over-year inflation,” she warned, suggesting a wider perspective is essential.

In her assessment, “Inflation is slowing and doing so across a broader range of goods and services”. Joe Brusuelas, the principal and chief economist for RSM US, shared a similar sentiment in his discussion with CNN.

By his calculations, if the inflation trend continued as it has over the past three months, we'd be looking at a more modest 2% by the year's end.

A Closer Look at Core CPI

Another sign that might allay concerns about runaway inflation is the Core CPI, an index that eliminates the often unpredictable and volatile food and energy prices.

In July, this metric rose by just 0.2%, leading to an annual rate of 4.7%. This is slightly less than June's 4.8%, hinting that the general trend might actually be towards a cooling of prices. Brusuelas posits a positive outlook for the near future, emphasizing expected relief in the core estimates of inflation.

"Going forward, I really think you’re going to see relief, vis-à-vis the core estimate of inflation, around rents, new vehicles and used vehicles," he asserted.

Future Projections and Shelter Inflation

A particularly interesting revelation comes from researchers at the San Francisco Fed.

Their data points to the possibility of the most significant dip in shelter inflation since the tumultuous years of the global financial crisis between 2007 and 2009. They project that "year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024”.

If this forecast holds true, it could result in a substantial pivot in shelter inflation dynamics, with consequential effects on the broader inflation environment.

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