CPI Growth Slows in July


Headline inflation and core inflation slowed in July after hitting a 13-year high in June. As the economy reopens, supply-chain disruptions and rebounding demand for certain services and products, such as travel-related services, pushed up consumer prices.

The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.5% in July on a seasonally adjusted basis, following an increase of 0.9% in June. Excluding the volatile food and energy components, the “core” CPI increased by 0.3% in July, the smallest monthly increase in four months. While the indexes for new vehicles (1.7%), recreation (0.6%), medical care (0.3%), and personal care (0.8%) all rose over the month, the indexes for motor vehicle insurance (-2.8%) and airline fares (-0.1%) declined in July. Meanwhile, the index for shelter, made up more than 30% of the headline CPI, rose by 0.4% in July. The index for owners’ equivalent rent (OER) increased by 0.3%.

The price index for a broad set of energy sources increased by 1.6% in July, after a 1.5% increase in June. All the major energy component indexes increased over the month. Gasoline (all type) rose by 2.4% in July, following a 2.5% increase in June. The food index rose by 0.7% in July. The index for food away from home rose by 0.8% in July, the largest monthly increase since February 1981.

During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 5.4% in July, the same increase as in June. The “core” CPI increased by 4.3% over the past twelve months, slower than a 4.5% increase in June. The food index rose by 3.4% and the energy index rose by 23.8% over the past twelve months.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

In July, the Real Rent Index declined by 0.2%, after a 0.6% decrease in June. Over the first seven months of 2021, the monthly change of the Real Rent Index was -0.3%, on average. We expect the rent component to rise in future data releases, adding pressure to inflation due to higher construction costs.

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