July CPI report shows key inflation measure still too high

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The Bureau of Labor Statistics (BLS) released its latest report on the Consumer Price Index (CPI) today, showing inflation up 3 percent from one year ago and up 0.2 percent over June.

CEI senior economist Ryan Young said:

“At first blush, it is fantastic news that the Consumer Price Index (CPI) for June fell to 3.0 percent. This is the lowest reading since 2021, when the great COVID inflation began. It is also just one percentage point above the Federal Reserve’s 2 percent target. But under the hood, inflation is still far too high. The core CPI, which is a more accurate number, is 4.8 percent.

“Prices change all the time for reasons having nothing to do with inflation. These include supply shocks, seasonal factors, technological improvements, and other reasons. These still get captured in CPI, even though the Fed is mostly concerned with monetary inflation—which comes from printing too much money, and is the main cause of today’s inflation.

“Core CPI ignores volatile food and energy prices, which distort the index. In this case, energy prices fell at an annualized 26.8 percent rate for non-monetary reasons, which by itself was enough to distort CPI by about 2 percentage points. That is why the real inflation picture is a lot less rosy than the 3 percent number that will get most of the headlines.

That is also why the Fed, which knows to trust core inflation rates more than the headline numbers, will still almost certainly raise interest rates at its next meeting in two weeks.

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