1. What is the definitional difference between the "core price index" and the "all items CPI"?

2. What is the main reason inflation has increased this year?

3. Define Demand Pull Inflation?

4. Inflation impacts two economic characteristics, as one expands the other deteriorates, what are the two characteristics?

Use the article to answer the following:

5. Define CPI from the WSJ article, "Inflation Stayed High in July as Economy Rebounded"

6. What was the average annual inflation rate in 2019?

7. The WSJ surveyed economist in July 2021. This survey resulted in two forecasted statements. What are the statements? One deals with the predicted behavior of inflation,

the other deals with a measure of what inflation is predicted to be in December 2021?

Article:

ECONOMY U.S. ECONOMY

Inflation Stayed High in July as Economy Rebounded

Consumer prices rose 5.4% from a year earlier, the same annual rate as in June, but the monthly pace slowed

The consumer-price index climbed 0.5% in July from June, a slower pace than its 0.9% increase in June from May. KENA BETANCUR/AGENCE FRANCE-PRESSE/GETTY IMAGES

Gwynn Guilford, August 11, 2021

Inflation remained elevated in July as the economic recovery continued, but prices showed evidence of cooling amid pandemic-related supply problems and signs that the recent rise in coronavirus infections is starting to crimp some business activity.

Consumer prices rose 5.4% in July from a year earlier, the same pace as in June, the highest 12-month rate since 2008, the Labor Department reported Wednesday.

On a monthly basis, however, price pressures weakened. The department's consumer-price index climbed a seasonally adjusted 0.5% in July from June, a significantly slower pace than its 0.9% increase in June from May, though well above the average 0.2% rate from 2000 to 2019.

The CPI measures what consumers pay for goods and services, including groceries, clothes, restaurant meals, recreation and vehicles.

The so-called core price index, which excludes the often volatile categories of food and energy, increased 4.3% from a year before, down from a 4.5% annual increase in June. Month to month, the core CPI rose 0.3%, also down sharply from the 0.8% average increase in the previous three months.

The weakening of price pressures in July from June isn't necessarily a sign that the inflation fever of the past few months is breaking.

"It's like the equivalent of going from a 104-degree to a 101-degree feverit's still elevated. It's just not as hot as what we saw in the prior three months," said Aneta Markowska, chief financial economist at Jefferies LLC. "There is still some pressure in the pipeline that should show up in the next few months."

The latest inflation figures came amid growing concerns about the recent rise in Covid-19 infections, driven by the fast-spreading Delta variant, and reports that it has begun to dent economic activity. Southwest Airlines Co. said Wednesday it has seen a slowdown in bookings

and a rise in trip cancellations this month and expects that to drag down third-quarter operating revenue. The carrier said that leisure passenger traffic and fares topped 2019 levels last month, before fears about rising infections took hold nationwide.

The Delta outbreak is also driving some consumers to curb restaurant visits and has prompted the return of mask mandates among certain retailers and municipalities. The weekly average of the number of seated diners tracked on restaurant-reservation platform OpenTable was down 8% from 2019 levels for the week ended Tuesday, a reversal since late June, when dining activity surpassed 2019 levels. Spending on air travel fell in late July, while that on fine dining has slipped, too, according to data

from Earnest Research, which tracks trends in credit-card and debit-card purchases.

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Airfares dropped slightly in July, reversing a sharp rise in recent months, and they remain below pre-pandemic levels, the Labor Department said.

Prices for hotels and motels rose again in July, having surpassed 2019 levels in June. Prices for eating out shot up 0.8% in July from June, the biggest monthly increase since February 1981, driven by a rapid rise in fast-food prices.

The Delta variant's impact could exacerbate the slowdown in economic growth under way, though it is hard to tell how much, said Joel Naroff, chief economist at Naroff Economics LLC.

"We could have countervailing forcesDelta, bankruptcies, and some government programs ending versus new government stimulus," he said, referring to Biden administration budget proposals. "That seems to argue for a steady moderation in growth, not a rapid deceleration."

Inflation has heated up this year as booming demand outpaced the ability of businesses to keep up. U.S. gross domestic product rose at a rapid 6.5% seasonally adjusted annual rate in the second quarter, powered by consumer spending that climbed at an 11.8% pace as more people got vaccinations, businesses reopened and trillions of dollars in federal aid flowed through the economy.

Gasoline prices picked up 2.4% in July from June, while grocery prices climbed 0.7%, both categories rising at a slightly slower monthly pace than in June. Among the supermarket items that jumped the most were pork roasts and ribs, which climbed 4.4%, and prepared salads, up 4.1%.

However, prices for coffee fell in July, after rising in June, as did those for fruits and vegetables, with orange prices declining 6.8% from June.

A semiconductors shortage has crimped auto production, causing prices to soar this year for new and used vehicles, as well as rentals. But used-car price growth slowed sharply in July, as prices rose 0.2% from June, after jumping at least 7.3% in each of the previous three months. New- vehicle prices picked up 1.7%, a slightly slower pace from June. Both are up markedly from pre- pandemic levels.

Many economists expect higher inflation to persist for a while, though declining gradually. Those surveyed by The Wall Street Journal in July estimated on average that annual inflation, measured by the CPI, would slow to 4.1% in December. The rate averaged 1.8% in 2019, before the pandemic hit the U.S. economy in March 2020.

Economists are forecasting growth to slow in the second half of the year, after a burst of growth fueled in the spring by widespread business reopenings, rising vaccination rates and a big infusion of government pandemic aid. As those effects fade, consumer spending gains should slow, and that should help tamp down price pressures, economists say.

Inflation is eating into household spending power despite wage increases in some industries. Average hourly earnings of private-sector workers, adjusted for inflation, fell 0.1% in July from

June on a seasonally adjusted basis, the Labor Department said. Wages in the leisure and hospitality industry, where labor shortages are unusually acute, rose 0.4% from June, adjusting for inflation.

Rents have been rising after being held down last year by pandemic-related forces.

FREDERIC J. BROWN/AGENCE FRANCE-PRESSE/GETTY IMAGES Rent is one category that many economists are monitoring as they seek to gauge inflation's future path. The Labor Department collects data on new and existing leases to measure both rent on a primary residence and so-called owners' equivalent rent, which estimates what homeowners would have to pay each month to rent their own home. Combined, these rent measures make up about one-third of the CPI prices for a hypothetical basket of goods and services, which means a pickup could buoy the overall inflation reading. Both measures climbed in July at the same pace as in June, with rent up 0.2% from the prior month, while owners' equivalent rent rose 0.3%. Rent has risen steadily since late last year, when it was suppressed by a combination of pandemic-related forces, including an exodus from higher-rent big cities.

"The economy is reopening, so young adults that had moved in with their parents are moving back out and returning to cities," said Ms. Markowska. "What's also happening, though, is that people just have more money than they've had in a long time."

Adam Tannenbaum, whose company owns workforce-housing units in central Pennsylvania, was surprised when tenants proved willing to accept recent rent increases on the order of 10% or more a year.

He said he was stunned when a bidding war broke out over a Columbia County, Pa., unit in May. "We advertised it at $725 thinking the economy's not that strong out here. Well, it got up to $950that's when I stopped it," said Mr. Tannenbaum, a managing principal at The Denali Companies, a workforce-housing investment firm. On top of that, the winner was also willing

to pay six months up front plus a security deposit before moving in, he said.

"I don't know where these people are getting their money from, but there's a lot of money out there and there's definitely a shortage of these very standardized workforce units," he said. This, he added is in "places where employment drivers are usually a university or an Amazon warehouse."

2021 Dow Jones & Company, Inc. Appeared in the August 12, 2021, print edition as 'Inflation Stays Hot But Price Pressures Ease a Bit.'