Inflation Rose to 3.2%, but Overall Price Trends Are Encouraging

on Aug11
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Fresh inflation data offered the latest evidence that price increases were meaningfully cooling, good news for consumers and policymakers alike more than a year into the Federal Reserve’s campaign to slow the economy and wrestle cost increases back under control.

The Consumer Price Index climbed 3.2 percent in July from a year earlier, according to a report released on Thursday. That was the first acceleration in 13 months, and followed a 3 percent reading in June.

But that tick up requires context. Inflation was rapid in June last year and slightly slower the next month. That means that when this year’s numbers were measured against 2022 readings, June looked lower and July appeared higher than if the year-earlier figures had been more stable.

Economists were more keenly focused on another figure: the “core” inflation index, which strips out volatile food and fuel prices. That picked up by 4.7 percent from last July, down from 4.8 percent in June. And on a monthly basis, core inflation roughly matched an encouragingly low pace from the previous month.

The upshot was that inflation continued to show signs of seriously receding after two years of rapid price increases that have bedeviled policymakers and burdened shoppers — and the details of the July report offered positive hints for the future. Rent prices have been moderating, a trend that is expected to persist in coming months and that should help to weigh down inflation overall. An index that tracks services prices outside of housing is picking up only slowly.

“This is continuing the kind of progress I think that you want to see,” said Omair Sharif, the founder of Inflation Insights, a research firm.

Airfares fell sharply, and hotel costs eased last month. Big drops in those categories may be difficult to sustain but are helping to limit price increases for now.

Used cars were also cheaper last month, a trend that some economists expect to intensify in the months ahead, based on declines that have already materialized in the wholesale market where dealers purchase cars.

The latest figures are likely to matter at the Fed, where officials are debating whether and when to raise rates again this year to ensure that the economy slows enough to guarantee that inflation fully returns to normal.

Even amid the resilience, though, the trend toward relentlessly higher prices does seem to be cracking.

Part of that owes to a return to normal after the pandemic. Messed-up supply chains are healing, allowing prices for some goods to come down. Workers are filling open jobs in service and production. Travel, which had plummeted before surging back, is reaching a more stable growth pace.

And some companies are beginning to find that they cannot keep charging customers more without losing them. Noodles & Company, the fast-casual restaurant chain, raised prices 8 percent in the second quarter of 2022 and another 5 percent in early 2023. But as it did that, price-sensitive guests pulled back and revenues fell.

The chain has been emphasizing cheaper bowls and a macaroni and cheese meal deal to help lure diners back. It has not repeated a big price increase in mid-2023, Mike Hynes, the firm’s chief financial officer, told analysts this week on an earnings call.

“We have gained some good traction, winning guests back from a value perspective,” he said. “But it’s going to take some time.”

Jim Tankersley contributed reporting.

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