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Inflation ticked up in July, reversing some progress in fight to slow price hikes

Inflation stands well below its peak last summer but remains elevated.

August 10, 2023, 8:30 AM

Consumer prices rose 3.2% last month compared to a year ago, marking an uptick that reverses some of the progress achieved in the monthslong fight to bring inflation down to normal levels, government data showed. The data, however, outperformed economist expectations of a larger increase.

Inflation stands well below its peak last summer of over 9% but remains more than a percentage point higher than the Federal Reserve's target rate.

Core inflation -- a measure that strips out volatile food and energy prices -- rose 4.7% in July compared to a year ago, in part because price increases for commodities like new vehicles and housing stand above the overall inflation rate.

Consumer prices increased a modest 0.2% in July compared to the previous month, which matched the month-over-month inflation rate in June, according to the data released on Thursday by the Bureau of Labor Statistics.

That reading suggests that the uptick recorded for the July data compared to a year ago arose in part from a decline in the inflation rate a year ago to which the fresh data was compared.

An increase in shelter prices accounted for more than 90% of the month-to-month price increases, the data showed. Food prices ticked up modestly in July compared to the previous month.

The price increases for some grocery store staples remain well above the overall inflation rate. The price of flour rose 8.5% in July compared to a year ago; while bread prices rose 9.5% and rice prices jumped 6.7% over that period.

Egg prices, by contrast, fell nearly 14% in July compared to a year ago, when a severe avian flu outbreak decimated supply.

Bacon prices dropped nearly 11% in July compared to a year ago, and chicken prices fell 2.5% over that period.

The fresh data arrived roughly two weeks after the Fed raised its benchmark interest rate another quarter of a percentage point, reviving its aggressive inflation fight despite a slowdown of price hikes.

By comparison, consumer prices rose 3% in June compared to a year ago.

The year-over-year inflation rate for July came in lower than economist expectations. Forecasters predicted a rise of 3.3% in July compared to a year ago.

Speaking at a press conference in Washington, D.C. late last month, Fed Chair Jerome Powell downplayed the progress achieved so far in reducing inflation.

"Inflation has moderated somewhat since the middle of last year," Powell said. "Nonetheless, the process of getting inflation back down to 2% has a long way to go."

The Fed remains open to raising rates again at its next meeting in September, depending on the economic data released over the months prior to that decision, Powell added.

For more than a year, the Federal Reserve has aimed to roll back price increases by slowing down the economy and slashing consumer demand. The approach, however, risks tipping the economy into a recession.

PHOTO: Federal Reserve Chairman Jerome Powell participates in a meeting of the Financial Stability Oversight Council at the U.S. Treasury, July 28, 2023, in Washington.
Federal Reserve Chairman Jerome Powell participates in a meeting of the Financial Stability Oversight Council at the U.S. Treasury, July 28, 2023, in Washington.
Kevin Dietsch/Getty Images

So far, the rate hikes appear to have slowed but not imperiled the nation's economic growth.

Some key economic indicators have sustained robust performance. A jobs report on Friday showed the labor market cooled, but still grew solidly in July, adding 187,000 jobs.

In June, a major upward revision of government data showed gross domestic product increased at a 2% annualized rate for a three-month period ending in March -- a sizable jump from the previous estimate of 1.3%.

The cooldown of inflation alongside resilient economic performance has given rise to optimism among some observers that the U.S. will avert a recession.

The Fed staff no longer forecasts a recession for the U.S., and there is a chance inflation could return to target without high job losses, Powell said in July.

Still, the Fed offered words of caution last month.

"The Committee remains highly attentive to inflation risks," the Federal Open Market Committee, the Fed's decision-making body on interest rates, said in a statement.

ABC News' Zunaira Zaki and Ivan Pereira contributed reporting.

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