On a monthly basis, consumer prices actually fell 0.1% from June to July; core inflation blipped up 0.1%, the Commerce Department reported.
Inflation started rising sharply in the spring of 2021 as the economy rebounded with surprising speed from the short but devastating coronavirus recession a year earlier. Surging customer orders overwhelmed factories, ports and freightyards, leading to delays, shortages and higher prices. Inflation is a worldwide problem, especially since the Russian invasion of Ukraine drove up global food and energy prices.
In the United States, the Commerce Department’s personal consumption expenditures (PCE) index is less well known than the Labor Department’s consumer price index (CPI).
But the Fed prefers the PCE index as a gauge of inflationary pressures, partly because the Commerce index attempts to measure how consumers adjust to rising prices by, for example, substituting cheaper store brands for pricier name brands.
CPI has been showing higher inflation than PCE; Last month, for instance, CPI was running at an 8.5% annual pace after hitting a four-decade high 9.1% in June. One reason: The Labor Department’s index gives more weight to rents, which have soared this year.
The Commerce Department also reported Friday that Americans’ after-tax personal income rose 0.3% from June to July after adjusting for inflation; it has fallen in June. Consumer spending rose 0.2% last month after accounting for higher prices.
The Fed was slow to respond to rising inflation, thinking it the temporary result of supply chain bottlenecks. But as prices continued to climb, the U.S. central bank moved aggressively, hiking its benchmark interest rate four times since March.