Consumer prices jump again in July, rebounding from pandemic lows, but inflation remains low

Published: Aug. 12, 2020 at 10:29 a.m. ET

By

Jeffry Bartash

Consumer price index rises 0.6% for the second month in a row

A bartender fills a pint glass for a customer at a bar in Columbus, Ohio.

The numbers:The cost of many goods and services such as gas, automobiles, clothing and airfare rose in July in a rebound from pandemic lows, but inflation is still barely visible in the wake of a coronavirus-induced recession that sapped demand throughout the economy.

The consumer price index rose 0.6% for the second month in a row, the government said Wednesday. Economists polled by MarketWatch had forecast a 0.4% advance.

The cost of living had declined from March through May during the height of the crisis.

The increase in consumer prices over the past 12 months, meanwhile, rose to 1% from 0.6% in June.

Just seven months ago, at the start of 2020, the yearly pace of inflation had climbed to as high as 2.5%.

Another closely watched measure of inflation that strips out food and energy also shot up 0.6% last month. The increase in the core rate was the largest since 1991, but it follows a record decline.

The yearly increase in the so-called core rate moved up to 1.6% from 1.2%.

What happened:Higher gas prices accounted for about one-quarter of the increase in consumer inflation in July. The cost of oil has recovered from multiyear lows earlier in 2020, though prices are still relatively low.

Prices for rent, medical care, new and used vehicles, auto insurance, passenger fares, apparel, and wireless phone and Internet service also rose.

Even after these recent increases, however, many companies lack the power to raise them significantly further. Far fewer people are flying, going out to eat, booking hotel rooms or buying clothes for the office, among other things.

"It mainly reflects a recovery in the prices of goods and services that were most affected during the early stages of the pandemic," said Capital Economics' chief U.S. economist, Paul Ashworth.

The cost of food and recreation were among the few categories to show declines in prices. Food prices fell 0.4% after three large increases in a row.

Big picture:Inflation has been relatively tame since the Great Depression of 2007-09, and the coronavirus crisis is likely to keep it that way for the foreseeable future. Inflation is still running well below the Federal Reserve's 2% target.

The government in pumping trillions of dollars' worth of aid into the economy, but only because demand was on the verge of collapsing. Inflation has been famously described as too much money chasing too few goods. Right now there's simply not enough demand for goods and services either in the U.S. or abroad to stoke a sustained increase in prices.

What they are saying? "At this point, it appears that the recent pickup in inflation has been more about the retracement from the lows in March and April rather than a telling sign of mounting price pressures," said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Your task

This writing assignment designed to give you an opportunity to apply what you have learned so far in our course to a specific current economic issue or event.

You must apply the tools of the course to interpret some key point or points made in the article. Please keep the following advice and requirements in mind:

Do not summarize the article as your response.

My goal is for you to better understand real world events given your economics knowledge

I am particularly interested in seeing that you can apply the tools of the course to what you read in the news, so analysis of the article you choose is crucial.

Your response will be graded on the quality of your analysis and the effectiveness with which you communicate your ideas.

Question :

1)What is the impact of a rise in CPI on consumer spending? What do you think will happen as CPI increases (in terms of consumer spending?)