Led by declines in gasoline and diesel prices, inflation eased for the second consecutive month after reaching a three-year high in May. As energy prices moderated, shelter resumed its role as the largest driver of headline inflation, accounting for one-third of the annual increase and over two-thirds of the monthly increase. Though easing inflation and a cooling labor market reduced pressure for Fed rate hikes, renewed tensions with Iran could keep inflation elevated in coming months, complicating the Fed’s path forward.
On a non-seasonally adjusted basis, the Consumer Price Index (CPI) rose by 3.4% in July from a year ago, following a 3.5% increase last month, according to the BLS latest report. The “core” CPI, excluding the volatile food and energy components, increased by 2.5% over the past twelve months, following a 2.6% increase in June. The housing shelter index, which makes up a large portion of “core” CPI, rose 3.2% over the year, following a 3.3% increase last month. Meanwhile, the component index for food rose by 3.0%, and the energy component index increased by 14.7%.
On a monthly basis, the CPI rose by 0.1% in July (seasonally adjusted), while the “core” CPI increased by 0.2%.
The price index for a broad set of energy sources decreased by 1.5% in July, as declines in gasoline (-2.9%) and fuel oil (-1.7%) were partially offset by minor increases in natural gas (+0.7%) and electricity (+0.1%). Meanwhile, food at home index decreased by 0.1% and food away from home index rose by 0.3 in July.
Outside of energy, other top contributors that rose in July included indexes for medical care (+0.4%), airline fares (+2.2%), communication (+0.6%), education (+0.5%) and recreation (+0.2%). Meanwhile, the index for motor vehicle insurance (-0.3%) was among the major indexes that decreased over the month.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.1% in July, matching last month as the smallest monthly increase since January 2021. Both the index for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.3% over the month. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than core inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than core inflation, the real rent index rises and vice versa. 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 was unchanged.
