U.S. inflation accelerates in July on rise in energy prices

U.S. inflation accelerated in July as anticipated. Sequentially, the headline inflation came in at 0.3 percent. On a year-on-year basis, inflation accelerated to 1.8 percent, owing to a rise in energy prices. Core prices rose 0.3 percent for the second straight month in the month. As a result, the 12-month change strengthened to 2.2 percent in July from 2.1 percent in June.

The strength in core inflation was widespread, with rises in the indexes for shelter, medical care, airline fares, household furnishings and operations, apparel and personal care all contributing. The index for new vehicles was one of the few to decline in July.

Core services prices continued to rise, and remained stable on a year-on-year basis at 2.8 percent. Core goods prices rose more modestly in July, but it was the second straight month of prices increases for a category that is typically deflationary. Core goods inflation rose 0.4 percent, the strongest reading since 2012.

Today’s report implies that the Fed’s preferred core inflation measure, core inflation measure, core PCE, may also show signs of firming in July. Nevertheless, core rate is typically a few ticks lower than CPI, so it is likely to still be right around the Fed’s 2 percent target, said TD Economics in a research report.