U.S. consumer prices rise above expectations in July

U.S. consumer prices rose 0.6 percent sequentially in July, matching June’s rise. July’s data came in above market expectations. On a year-on-year basis, total CPI rose 1 percent, accelerating from June’s figure of 0.6 percent. More surprising was a 0.6 percent sequential rise in prices excluding food and energy in July. Many items where prices were soft during the peak of the shutdowns, surged in July. This lifted core inflation on a year-on-year basis to 1.6 percent, up from 1.2 percent in June.

Prices rose for both core goods and services. On the goods side, strong rises were recorded in apparel, used cars and trucks and new vehicles. However, all of these items still have fairly muted rise on a year-on-year basis. For core services, the index for motor vehicle insurance surged in July, as it did the previous month.

Energy prices were up 2.5 percent sequentially in July. Nevertheless, on a year-on-year basis energy prices are still 11.2 percent lower than a year ago. Prices at the pump rose 5.3 percent sequentially in July, but are also deeply below their year ago levels.

“July's inflation data provides evidence that many of the short-term deflationary forces have reversed. But, with unemployment still sky-high at 10.2 percent, these sharp monthly increases are not expected to be sustained over the medium term. And, some of the more persistent categories in inflation, namely shelter, continued to cool in July. Core inflation has returned a little more rapidly than we expected at the time of our June forecast, but we still expect that substantial economic slack will keep inflation muted over the next couple of years”, said TD Economics in a research report.