Rapid pace of US consumer price increases expected to level off

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US Inflation updates

The rapid pace of US consumer price increases seen in recent months is expected to level off near a 13-year high in July, which would be the first sign of possible moderation since the start of the year.

According to a consensus forecast compiled by Bloomberg, the consumer price index (CPI) is expected to rise 5.3 per cent in July from a year ago. That is roughly in line with the 5.4 per cent increase reported in June, which was the largest since 2008.

The month-on-month increase is set to decelerate by a larger magnitude, with prices forecast to rise 0.5 per cent compared with the eye-popping 0.9 per cent gain seen previously.

The data is set to be published by the Bureau of Labor Statistics at 8.30am eastern time on Wednesday.

Price pressures, even once stripping out volatile items such as food and energy, are expected to remain elevated. The “core” measure is predicted to rise a hefty 4.3 per cent in July relative to the year before, just shy of the 4.5 per cent increase seen in June.

Whether the recent increase in consumer prices will turn into more persistent inflation is a point of debate among policymakers and economists.

The Federal Reserve has broadly taken the view that rising costs will abate over time, as pandemic-related shortages and supply-chain constraints ease. But Jay Powell, the central bank’s chair, recently acknowledged that inflation risks were tilted “to the upside” in the near term.

Recent data show that inflationary pressures have begun to broaden out beyond sectors most impacted by the economic reopening — such as air fares and other travel-related expenses — raising concerns that inflation will be more than just a “transitory” phenomenon. Economists are watching the recent jump in housing costs, in particular, as well as wage growth.

An increasing number of US central bankers have begun making the case that the Fed should soon consider scaling back its unprecedented monetary policy stimulus, which includes $120bn of monthly asset purchases of agency mortgage-backed securities and Treasuries.

The Fed has said that it would maintain that pace until it sees “substantial further progress” on its goals of 2 per cent inflation on average and maximum employment.

Raphael Bostic, president of the Atlanta Fed and a voter on the Federal Open Market Committee, said this week that the Fed had achieved the first of these goals, a view supported by Tom Barkin of the Richmond Fed, Boston’s Eric Rosengren and James Bullard of St Louis, among others.

Fed governor Christopher Waller recently made the case for an announcement in September on “tapering”, while vice-chair Richard Clarida backed a move later in the year.

Powell has not suggested a specific timetable, but confirmed that a debate was already under way about how exactly the central bank would go about removing its accommodation.

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