U.S. consumer prices rose more than expected in July, with a measure of underlying inflation increasing by the most in 29-1/2 years amid broad gains in the costs of goods and services.
The report from the Labor Department on Wednesday, however, probably does not mark the start of worrisome inflation, and the Federal Reserve is likely to continue pumping money into the economy to aid the recovery from the COVID-19 recession.
The jump in prices is likely an unwinding of sharp declines experienced when nonessential businesses were shuttered in mid-March to slow the spread of the coronavirus. The higher prices further dispel fears of deflation, a decline in the general price level that is harmful during a recession as consumers and businesses may delay purchases in anticipation of lower prices.
The consumer price index rose 0.6% last month, with gasoline accounting for a quarter of the gain. The CPI increased by the same margin in June. In the 12 months through July, the CPI accelerated 1.0% after climbing 0.6% in June.
Excluding the volatile food and energy components, the CPI jumped 0.6% last month as the cost of motor vehicle insurance surged a record 9.3%. That was the largest gain in the so-called core CPI since January 1991 and followed a 0.2% rise in June. In the 12 months through July, the core CPI advanced 1.6% after increasing 1.2% in June.
Economists polled by Reuters had forecast the CPI would rise 0.3% in July and the core CPI would gain 0.2%.
The report followed on the heels of news on Tuesday that producer prices accelerated in July.
With at last 31.3 million people on unemployment benefits, inflation is hardly a threat in the services-oriented economy.
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