U.S. Inflation Quickened in July on Costs of Vehicles, Apparel

(Bloomberg) — U.S. consumer prices rose in July by more than expected on a jump in auto and apparel costs, though inflation remained broadly muted as the pandemic suppressed demand.

The consumer price index rose 0.6% from the prior month, following a 0.6% gain in June, Labor Department figures showed Wednesday. The median forecast in a Bloomberg survey of economists called for a 0.3% increase. Compared with a year earlier, the gauge increased 1%, after June’s 0.6% rise.

Excluding volatile food and fuel costs, the so-called core CPI — viewed by policy makers as a more reliable gauge of price trends — rose 0.6% from the prior month, the biggest jump in almost three decades, after a 0.2% increase in June. On an annual basis, core inflation measured 1.6%, a four-month high, following 1.2% in June.

Fixed-income measures of inflation expectations rose after the report. The 10-year breakeven rates, garnered by the gap between nominal and inflation-linked Treasury debt, rose to as high as 1.67% from about 1.63% earlier in the morning.

The gain in consumer prices reflects the rebound in demand for goods and services from the depths of the pandemic-induced lockdowns earlier this year, suggesting inflation is closer than thought to returning to the pre-crisis pace. Federal Reserve policy makers have seen little threat of inflation and expect to hold interest rates near zero for the foreseeable future, though investors in Treasuries have signaled they expect price gains to pick up amid extended monetary stimulus.

“These readings bear watching for further acceleration even though the trend remains subdued against a backdrop of weak demand and excess capacity,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note.

Prices for clothing rose 1.1% after a 1.7% jump in June, while used cars rose 2.3%, the most since early 2010. New vehicles also increased 0.8%, the biggest gain in nine years.

Car insurance costs posted a record monthly increase of 9.3% following company rebates in prior months that accounted for less driving. Airfares also posted the biggest montly gain in 21 years, though prices remained 23.7% below year-earlier levels with passenger counts still depressed.

The cost of groceries fell 1.1% from the prior month, the first decline in almost a year and providing some relief to consumers who were facing more expensive food while sheltering at home.

Gasoline prices jumped 5.6% and accounted for about one quarter of the gain in the overall CPI. Still, pump prices were down 20.3% from July 2019.

*story by Bloomberg