Good and bad news for July CPI numbers: CEI analysis

The Consumer Price Index for July rose 0.2 percent in July after a 0.1 percent decrease in June, largely driven by housing costs. CEI senior economist Ryan Young explains why this report may give the Fed, Congress, and the White House more reasons to restrain their spending habits.

“The Consumer Price Index (CPI) ticked back up in July, but the increase might not be due to inflation. This is both good news and bad news. Ninety percent of July’s CPI increase was driven by housing. 

“Since inflation affects all goods, not just select goods, other prices are inflating less than the headline CPI number suggests.

“Rising housing prices remain a concern. Part of the problem is uncertainty over interest rates. Mortgage rates have been decreasing on their own recently, but markets seem to be waiting on the Federal Reserve to cut its federal funds rate before mortgage rates fall further.

“The best way to make housing more affordable is to build more supply. Policymakers can reject rent control proposals, ease permits, environmental reviews, and other paperwork, and can remove tariffs on building supplies like lumber and steel. This would not address inflation itself but would at least ease housing prices.

“Inflation will likely remain a concern until the Fed, Congress, and the White House prove that they can restrain their spending habits. It may take a downturn to give them an opportunity to prove their credibility, but this is one area where pessimism still reigns.”