The Cost of Living in U.S. Climbed in July
The U.S. consumer-price index rose 0.5% in July from a month earlier, more than twice the 0.2% increase economists had forecast, which means the cost of living in the U.S. climbed by the most it has in four months, with higher energy and food prices leading gains. When excluding volatile food and fuel costs, the core gauge rose a more modest 0.2%.
Higher prices are in part due to producers passing on higher commodity (NYSE:RJI) costs to consumers, though that practice may soon change if businesses find their higher prices are costing them customers. Yesterday the producer price index, another of the Labor Department’s three monthly inflation gauges, which also include the prices of imports, reportedly increased in July, the most in six months.
But last week, the Federal Reserve said that longer-term inflation is expected to ultimately settle “at or below” its goal. Michael Feroli, chief U.S. economist at JPMorgan (NYSE:JPM), also says inflation will soon moderate. “There’s not a lot of improvement in the labor market, and given what’s going on with economic growth, pricing power should weaken further,” said Feroli.
The cost of rent, the single largest component of the CPI, rose 0.3% in July. Apparel, tobacco, and prescription drug (NYSE:XLV) prices also increased significantly. The owners-equivalent, one of the categories that tracks rental prices in comparison to home-ownership costs, also climbed 0.3% last month, with high levels of foreclosures flooding the housing market and pushing down purchase prices for homes, while increasing demand for rental housing.
In the last twelve months through July, consumer prices have increased 3.6%, the same year-over-year gain as in June, when the consumer price index only rose 0.2%. Between July 2010 and July 2011, the core CPI, which excludes volatile food and fuel (NYSE:USO) costs, rose 1.8%, topping estimates and the 1.6% gain the 12 months to June.
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Energy (NYSE:XLE) costs rose 2.8% in July, according to today’s report, their biggest gain since March. Above normal July temperatures were responsible for a lot of those gains, with more people running air conditioning around the country. Food (NYSE:RJA) costs rose 0.4% as the meats, dairy, fruits, and vegetables prices climbed. The cost of medical care rose 0.2%.