U.S. consumer price index jumps 5.4% in July, indicates rising inflation

Consumer prices in the United States rise rapidly in July, as the economic recovery gathered traction and demand outpaced the supply of labor and commodities.

The Labor Department announced on Wednesday that its consumer price index climbed 5.4 percent year on year in July, matching June's number and matching the biggest increase since August 2008.

The government said that CPI rose 0.5 percent month over month, meeting the average expectation of analysts polled by Dow Jones.

Core inflation, which excludes energy and food, climbed by 0.3 percent last month, falling short of the projected 0.4 percent gain and falling well short of June's 0.9 percent increase. The core figure is up 4.3 percent over the last year, a little slowdown from the 4.5 percent in June.

This boost will put rising-price concerns front and center at the White House and the Federal Reserve.

The index tracks how much people pay for products and services such as clothing, food, restaurant meals, leisure activities, and automobiles.

Rising prices reflect strong consumer demand, which has been bolstered by universal vaccinations, the elimination of many business restrictions, trillions of dollars in federal epidemic assistance, and large household savings.

Energy prices climbed 1.6 percent in July, with gasoline prices up 0.6 percent following a 2.9 percent jump in June, and are now 39.1 percent higher than a year earlier. Gas prices generally rise throughout the summer due to an increase in leisure travel, but they are also recovering from deep lows achieved in 2020.

The new inflation statistics come despite rising worries about the recent surge in Covid-19 infections, which has been driven by the rapidly spreading Delta strain, and claims that it has starting to crimp economic activity.

Southwest Airlines Co. said Wednesday that it has witnessed a slowdown in reservations and an increase in trip cancellations this month, which it expects to pull down third-quarter earnings.

The Delta outbreak is also causing some customers to limit their restaurant visits and has led several businesses and municipalities to reinstate mask regulations.

Hotel and motel prices increased again in July, having exceeded 2019 levels in June. Pricing for eating out increased 0.8 percent from June to July, the largest monthly increase since February 1981, owing to a significant spike in fast-food prices.

Inflation has risen this year as rising demand has outpaced firms' capacity to keep up. In the second quarter, the United States' GDP increased at 6.5 percent seasonally adjusted annual rate, fueled by 11.8 percent growth in consumer spending.

Investors, lawmakers, and central bank officials are all keeping a careful eye on the developments. Quick price increases can pressure consumers if wages do not keep pace, and if they look to be sustained, it could prod the central bank to pull back on support for the economy.

In late July, Fed Chairman Jerome Powell restated his belief that inflation is expected to decrease over time as supply-chain bottlenecks and other consequences of the economy's reopening are resolved.