Fresh inflation data offered economists and policymakers further evidence that price increases are meaningfully cooling, good news more than a year into the Federal Reserve’s campaign to slow the economy and wrestle cost increases back under control.
The Consumer Price Index climbed 3.2 percent in the year through July, according to a report released on Thursday. That marked the first acceleration in 13 months, and followed a 3 percent reading in June.
But that pickup required context. Inflation was rapid in June of last year and slightly slower the following month. That means that when this year’s numbers were measured against 2022 readings, June looked lower and July appeared higher than if the year-ago figures had been more stable.
Economists are more keenly focused on another figure: the “core” inflation index that strips out volatile food and fuel prices. That picked up by 4.7 percent over the past year, down from 4.8 percent in June. And on a monthly basis, core inflation climbed just 0.2 percent, matching an encouragingly low reading in the previous month.
The upshot of the report was that inflation continues to cool — and the July details offered positive signs for the future. Rent prices have been moderating, a trend that is expected to persist in coming months and which should help to weigh down inflation overall. An index that tracks services prices outside of housing is picking up only slowly.
“This is continuing the kind of progress I think that you want to see,” said Omair Sharif, the founder of Inflation Insights, a research firm. “Overall, this is pretty good news.”
Airfares fell sharply, hotel costs eased and used cars became cheaper last month. Big drops in those categories may be difficult to sustain but are helping to limit price increases for now.
The fresh inflation figures are likely to be in focus at the Fed, where officials are contemplating whether inflation has slowed enough for central bankers to stop lifting interest rates. Policymakers have raised the benchmark rate to a range of 5.25 to 5.5 percent, up from near zero in March last year. That is making it more expensive to borrow to buy a house or afford a car. As the Fed’s moves work their way through the economy, they slow it down and chip away at how much companies can raise prices.
“There are a lot of seeds in this report that suggest more disinflation to come,” said Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, a research firm. “It probably means that we are at — orvery close to — the peak on interest rates. We think we’re at the top.”
Officials are debating whether they need to raise rates again this year to ensure that the economy slows adequately to guarantee that inflation returns fully to normal. Mr. Sharif similarly said he thought that the fresh figures would make it easier for officials who want to hold off on a rate increase to make their case at the Fed’s next meeting, on Sept. 20.
They “will have a lot of ammo to skip September, based on what the data are showing us right now,” he said.
Even if it contained positive news for the Fed, the July inflation report could prove more difficult for the Biden administration to brag about, given the pickup in the headline number. Previous reports had shown a fairly across-the-board cooling.
And there is a risk that the overall inflation gauge could stay higher into next month.
Gas prices began to pick up at the end of July. Although the jump came too late to matter much for that month’s report, it has persisted into August and will probably prop up inflation in the next set of figures — which will be the last ones released before the Fed meets to make its next decision on interest rates.
Paul Ashworth, the chief North America economist at Capital Economics, wrote that “other than triggering a rebound in airline fares via higher jet fuel prices, we expect the knock-on impact” of higher fuel costs “to be pretty modest.”
Altogether, he added, there was “nothing here to suggest the Fed needs to push ahead with further interest rate hikes this year.”
