Inflation ticks higher in July for first time in 13 months as rent climbs, data shows

Inflation picked up in July, breaking a 12-month streak of slowing consumer price increases and underscoring that the rest of the battle to tame a historic spike in consumer costs could be more challenging.

Last month, another decline in used car prices costs offset a further surge in rent.

What is the current inflation rate?

Consumer prices overall increased 3.2% from a year earlier, up from 3% in June, according to the Labor Department’s consumer price index, a measure of goods and services prices across the economy. That rise in inflation was largely due to a technicality in the calculation of yearly price gains.

Is inflation going down?

The small uptick still marks a significant pullback from June 2022, when annual inflation peaked at a 40-year high of 9.1%. The acceleration in yearly price increases was mainly due to the fact that inflation already had cooled some by July 2022 and so the gap in prices between that month and July 2023 was larger.

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On a monthly basis, prices rose a modest 0.2% following a similar increase in June.

Still, the report points to a more gradual descent in inflation in the months ahead. Because of a projected rise in energy prices, Barclays expects annual inflation to end the year roughly unchanged at 3.2%.  

What is the difference between CPI and core CPI?

"Inflation is cooling, but the path down is still expected to be bumpy and littered with potholes," says Diane Swonk, chief economist of KPMG Economics. 

More critically, core prices, which exclude volatile food and energy items and which the Federal Reserve watches more closely, are still elevated. They rose by a measured 0.2%, the same as in June. Yet that left the annual increase at 4.7%, down just slightly from June’s 4.8% increase and well above the Fed's 2% target.

Broadly, prices for goods, such as used cars and furniture, have declined recently as pandemic-related supply chain snarls have resolved. But the cost of services, such as rent, car repairs, auto insurance and haircuts have risen briskly.

Will there be more rate hikes in 2023?

The Fed is especially concerned about the cost of services, excluding housing, which are tied closely to wage growth. Pay increases remain strong and the Fed believes it can help contain them by raising interest rates to cool the labor market.

While services inflation has eased recently, Barclays says that’s largely because of drops in hotel rates and airfares, which are volatile. Air fares have fallen in part because of lower jet fuel costs.

As a result, the research firm believes the Fed will decide to raise its key interest rate once more by the end of the year after hiking rates by more than 5 percentage points in 15 months. Other economists say there has been enough progress in the inflation fight for the Fed to hold rates steady.

"Overall, there’s nothing here to suggest the Fed needs to push ahead with further interest rate hikes this year," says economist Paul Ashworth of Capital Economics.

Will rent go down in 2023?

The cost of housing again was the biggest driver of inflation, though the increases have slowed a bit. Rent picked up a solid 0.4% in July but that’s down from a flurry of stronger increases. Annually, rent eased to 8%. Economists expect rent increases to downshift substantially, based on new leases, but that shift has been slow to filter through to existing leases.

Meanwhile, auto insurance costs are up 17.8% from a year ago, and car repair prices rose 12.7% annually.

More encouraging was a 1.3% drop in used car prices. They generally have been on a downward trend and costs are down 5.6% yearly after a sharp pandemic-related run-up. New car prices dipped 0.1% and largely have been stable in recent months.

Airline fares tumbled 8.1%, largely on lower jet fuel prices, and are down 18.6% yearly, though that trend is likely to reverse now that fuel costs are headed higher. Hotel rates dipped 0.3%. Furniture prices fell 2.8% from a year earlier.

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Are food prices going to go down in 2023?

Grocery prices rose more sharply after a string of smaller increases or declines, climbing 0.3%. That still pushed down the yearly increase to 3.6%. The cost of commodities such as wheat and corn had been falling because of easing global demand.

Last month, the price of rice and bread both rose 0.9%, uncooked ground beef jumped 1.5% and cookies increased 0.8%.

But chicken and fish prices both slid 1.1%, bacon was down 0.7% and eggs declined 2.2%. That’s the fifth straight monthly decline for eggs after a string of sharp bird flu-related increases, and costs are now down 13.7% over the past year.

Restaurant prices, meanwhile, rose more modestly after several large increases tied in part to rapidly rising wages sparked by labor shortages. Costs to dine out are up 7.1% over the past year.

Will gas keep getting more expensive?

Gas prices edged up 0.2% in July and are down 19.9% from a year earlier. Pump prices are well off their $5 peak a year ago but are expected to move higher this year on a brighter global economic outlook and OPEC oil production cutbacks. Nationally, regular unleaded gasoline averaged $3.82 a gallon Tuesday, up from $3.54 a month ago.

S&P 500

Stocks were up modestly in mid-day trading following the CPI report, paring earlier gains. The Dow Jones Industrial Average gained 0.18%, while the S&P 500 increased 0.23% and the NASDAQ climbed 0.16%. 

Curious about inflation? We've got you covered.

USA TODAY explores the questions you and others ask about inflation and how it affects your life, from "What is inflation?" to "What happens during a recession?" For more answers to your questions about today's report and other economic trends, keep reading:

Mortgage rates today

Mortgage rates are staying about the same, with Thursday’s average 30-year fixed mortgage hovering at 7.40%, 15-year fixed mortgages averaging 6.69% and a 30-year jumbo home loan averaging 7.21%. 

Generally, it’s roughly 20% more expensive to own a home than it was a year ago thanks to higher mortgage rates and sales prices. 

The typical monthly mortgage payment for a homebuyer was $2,605 during the four weeks ending July 30, a $32 dip from July’s record high but a 19% increase as compared to a year earlier,  according to a Friday report from real estate listing company Redfin.

e Richmond Federal Reserve.

What is inflation?

Inflation is basically measured by comparing the current price of goods and services to their recent price history. Several government-released data sets help to determine those numbers. 

The Consumer Price Index, or CPI, is the primary gauge.  It measures the costs of goods in an urban market, which represents more than 90% of Americans, and is issued each month by the U.S. Bureau of Labor Statistics. 

The CPI looks at a ‘fixed basket’ of roughly 80,000 goods and services. What gets put into that basket depends on the Consumer Expenditures Survey which surveys consumers to figure out which goods are important. The primacy of those goods then sets their weight in the CPI. For instance, the price of gasoline, which is a key factor in many Americans’ cost of living, has a greater weight than most other items. 

There’s another version of the CPI however. The Chained Consumer Price Index for All Urban Consumers is used to adjust tax brackets. That index notes the substitution of similar items, which often happens when prices rise amid inflation. That flexibility in which items are evaluated gives a more accurate snapshot of consumer spending and doesn’t overstate inflation.

Is CPI the only measure of inflation the Federal Reserve considers?

No. The Fed’s favored inflation metric is actually the Personal Consumption Expenditures price index (PCE) from the Bureau of Economic Analysis. PCE also is split into headline and core, but it assesses a different basket of goods and services and polls a larger group of consumers.  

PCE looks at price changes for all direct and indirect consumer consumption, not just specifically what urban households are paying out of pocket like the CPI. For instance, CPI would only look at what urban households pay out of pocket for medical expenses, but PCE includes costs paid by employer-provided insurance, Medicare, and Medicaid. 

PCE also factors in substitutions. “Thus, if the price of bread goes up, people buy less bread, and the PCE uses a new basket of goods that accounts for people buying less bread,” the Cleveland Fed said. “The CPI uses the same basket as before.”  

What is the wage growth rate?

Average hourly earnings increased 14 cents in July to $33.74, maintaining the annual wage increase at 4.4%. Pay hikes were over 5% in 2022, so wage increases have been slowing but they are still higher than the 3.5% rise the Federal Reserve would like to see at the most as it tries to lower inflation.  

Current unemployment rate

The U.S. continued to add more jobs in July, with the nation seeing 187,000 more positions despite steeper interest rates and inflation. 

The jobless rate, determined by a different survey of households, ticked down slightly from 3.6% to 3.5%, according to the Labor Department.

When is the next Fed interest rate decision?

The Fed’s meeting schedule is: 

◾ Sept. 19-20

◾ Oct. 31/Nov. 1

◾ Dec. 12-13

What the Fed rate increases mean to credit card rates

The interest rates banks charge on their credit cards are connected to the prime rate. That, in turn, is largely pegged to the Fed funds rate.

There were limits set by state law in the late '70s and early '80s largely keeping credit card lenders from implementing an interest rate higher than 18%. In the mid-90s, with the prime rate ranging from 8% to 9%, credit card rates hovered at 15.5% to 16%.

As of last month, when the prime rate climbed to 8.25%, the average interest rate for a new credit card increased from 14.6% in February 2022 to 24.2% as of mid-July, said LendingTree. That's spiked monthly interest charges to $140 – roughly a $55 monthly increase – on the average American's $6,965 credit card balance. 

What's the difference between CPI and PPI?

CPI gauges inflation as felt by consumers each day, while the PPI, or producer price index, measures the average shifts over time in the selling prices received by domestic producers for their output. PPI, often referred to as wholesale price inflation, is measured at an earlier stage of the production and marketing cycle and does tend to impact CPI, according to th

There’s one more metric - ‘core inflation’ - which measures inflation but leaves out the costs of food and energy whose costs are more volatile. 

How does raising rates lower inflation?

The federal funds rate is what banks charge each other for overnight loans. If that rate rises, banks generally pass on that additional cost, meaning it becomes more expensive for businesses and consumers to borrow as rates rise on everything from adjustable-rate mortgages to credit cards. That makes the funds rate a key lever for the Federal Reserve to pull when it’s trying to control inflation. 

When rates rise and borrowing slows, an overheated economy cools down and that can put the brakes on the rate of price increases. 

U.S. inflation rate history

The inflation rate has tumbled, falling by more than half from its peak of 9.1% in June, 2022. But it remains above the 2% target favored by the Federal Reserve. Here's a snapshot of the U.S. inflation rate by month since May 2022:

• May 2022: 8.6%
• June 2022: 9.1%
• July 2022: 8.5%
• Aug 2022: 8.3%
• Sept 2022: 8.2%
• Oct 2022: 7.7%
• Nov 2022: 7.1%
• Dec 2022: 6.5%
• Jan 2023: 6.4%
• Feb 2023: 6.0%
• Mar 2023: 5.0&
• Apr 2023: 4.9%
• May 2023: 4.0%
• June 2023: 3.0%
• July 2023: 3.2%

Key inflation report

The Federal Reserve decides whether to raise, lower or leave interest rates where they are based on achieving its twin goals of price stability and maximum employment.  The CPI is a key measure the Fed uses to determine if prices are “stable.”  

"CPI probably gets more press, in that it is used to adjust social security payments and is also the reference rate for some financial contracts,” the Cleveland Fed said.

In July, the Federal Reserve boosted its key interest rate by a quarter point  to a range of 5.25% to 5.5%, the highest level in 22 years. It indicated another increase is a possibility even though inflation has been waning and is far below the four-decade peak it reached in June, 2022.