Inflation ticks up in July for first time in over a year

Inflation ticked up to 3.2 percent year-over-year in July and 0.2 percent from June alone, according to new consumer price data released Thursday by the Labor Department.

This marks the first increase after 13 months of falling inflation. But that doesn’t necessarily mean inflation is about to come roaring back.

The so-called “core” consumer price index (CPI), which excludes volatile food and energy prices, dropped slightly from 4.8 percent year-over-year in June to 4.7 percent in July.

The CPI is one of several economic indicators the Federal Reserve is watching as it weighs whether to hike interest rates again at its September meeting.

While inflation has plummeted from its 9.1 percent year-over-year peak last June, Federal Reserve Board Chairman Jerome Powell told reporters last month there’s still a “long way to go” before inflation returns to its 2-percent target. 

New York Federal Reserve Bank President John Williams recently said a September interest rate hike is an “open question,” while Federal Reserve Governor Michelle Bowman said Monday that it “will likely be needed.”

Stubbornly high housing costs are perhaps the biggest barrier to bringing down inflation, and interest rates, economists said.

“This better inflation reading does not change our view that the Federal Reserve is going to increase the federal funds rate at least once more before the end of this year,” said Eugenio Alemán, chief economist at Raymond James.

“In order for this to change, there would need to be a strong decoupling between headline inflation and core inflation but for that, we need a big slowdown in shelter costs, which we have been expecting for several months and has still failed to show up.”

High interest rates have been driving up the cost of mortgages, car ownership and balance-carrying credit cards. Consumer debt ballooned $17.9 billion from May to June, and American credit card balances surpassed $1 trillion.

The dual burden of high prices and interest rates has soured some Americans’ economic outlook.

Half of Americans think official inflation statistics understate the economic strain, polling conducted last month by the Economist/YouGov found. Thirty-nine percent anticipate inflation would be higher in six months.

Updated at 10:38 a.m.