US Inflation Cools in July as Shelter Costs Rise

U.S. inflation moderated in July, as indicated by data released by the U.S. Bureau of Labor Statistics (BLS) on Tuesday. The Consumer Price Index (CPI) for all items experienced a 0.1% increase from the previous month in July, following a 0.4% decrease in June. On an annual basis, the all items index saw a 3.4% rise in July, a decrease from the 3.5% annual increase recorded in June. The shelter index, a significant component of inflation, rose by 0.1% month-over-month in July. According to the BLS, this shelter increase accounted for approximately two-thirds of the total monthly rise in the all items index. Specifically, both the rent index and the owners' equivalent rent index each increased by 0.3% compared to the prior month. The annual increase for the shelter index stood at 3.2% year-over-year. Sam Williamson, senior economist at First American, suggested that the overall deceleration in inflation might signal a waning momentum in recent price pressures. Williamson stated in a release that while shelter contributed about half of July's monthly increase, the subdued growth in asking rents indicates that shelter inflation has further potential to decrease as these trends are incorporated into the official inflation figures. The core inflation measure, the all items less food and energy index, increased by 0.2% month-over-month in July, after remaining flat in June. The BLS attributed this core inflation rise to increases in specific categories, including medical care (0.4%), airline fares (2.2%), communication (0.6%), education (0.5%), and recreation (0.2%). Year-over-year, the all items less food and energy index rose by 2.5%, down from a 2.6% annual jump in June. This rate is approaching the lowest inflation levels observed since early 2021. Williamson commented that this suggests recent price pressures remain relatively contained, with minimal evidence of a widespread acceleration across the economy. The food index showed a monthly increase of 0.1% and an annual increase of 3.0%. In contrast, the energy index experienced a monthly decline of 1.5% in July, following a 5.7% drop in June. This decrease was primarily driven by a 2.9% reduction in the gasoline index, which offset a 0.7% monthly increase in the natural gas index and a 0.1% increase in the electricity index.