WASHINGTON — Inflation in the United States rose in July after 12 straight months of declines, boosted by costlier housing. But excluding volatile food and energy prices, so-called core inflation matched the smallest monthly increase in nearly two years.
The inflation figure the government reported Thursday showed that consumer prices increased 3.2% from a year earlier. That was up from a 3% annual rise in June, which was the lowest rate in more than two years. The July inflation figure remained far below last year’s peak of 9.1%, though still above the Federal Reserve’s 2% target.
The Fed, economists and investors, though, pay particular attention to the core inflation figures for signs of where inflationary pressures might be headed. From June to July, core inflation remained a tame 0.2%.
Thursday’s price data will be among the key barometers the Fed will weigh in deciding whether to continue raising interest rates. In its drive to tame inflation, the Fed has raised its benchmark rate 11 times since March 2022 to a 22-year high.
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A jump in energy prices has rekindled some of the inflation pressures underlying the economy. Gasoline prices have surged nearly 30 cents over the past month to a national average of $3.83 a gallon, according to AAA.
Economists say that in the fight to conquer inflation, the easy progress has likely already been achieved. Gasoline prices, for example, though liable to bounce around from month to month, have already plunged from a peak national average of more than $5 a gallon, which was reached in June of last year after Russia’s invasion of Ukraine.
Much of the inflationary surge that began in 2021 was caused by clogged supply chains: Ports, factories and freight yards were overwhelmed by the explosive economic rebound from the pandemic recession of 2020. The result was delays, parts shortages and higher prices. But supply-chain backlogs have eased in the past year, sharply reducing upward pressure on goods prices. Prices of long-lasting manufactured goods actually dipped in June.
Now, the Fed faces a daunting problem: persistent inflationary pressures in service businesses — restaurants, hotels, entertainment venues and the like — where wages represent a substantial share of costs. Worker shortages have led many of these services companies to sharply raise pay.
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