US Inflation Increased in July for First Time in 13 Months

The rate of US inflation increased in July for the first time in more than a year, despite the Federal Reserve’s steady march into the highest interest rates in decades. However, some economists are pointing to other data in the new economic report that they say is more promising.

According to the US Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI) report released on Thursday, the aggregate cost of consumer goods rose by 3.2% in July 2023 as compared to July 2022. With June’s 3% increase a month prior, it was the first time in 13 months that inflation tacked upward.

At its meeting last month, the Federal Reserve, the US’ central bank, increased interest rates by a moderate amount which nonetheless brought them to their highest point in 22 years. With the bank’s goal of US inflation being reduced to no higher than 2%, the immediate expectation of upward-creeping inflation would likely be that more rate hikes are on the way as well. However, some financial experts are noting that things are more complex than that.

“There are a lot of seeds in this report that suggest more disinflation to come,” Laura Rosner-Warburton, a senior economist at research firm MacroPolicy Perspectives, told US media. “It probably means that we are at - or very close to - the peak on interest rates.”

Other economists who spoke with US media pointed to the “core” inflation index, one of the many other data points included in the BLS report. This metric removes food and fuel prices from the calculations, since those commodities tend to be more capricious with their prices than other goods. For July, the core inflation was 4.7%, a slight decrease from the 4.8% seen in June.

In addition, the Federal Reserve Board of Governors won’t be meeting in August; their next meeting is scheduled for September 20, meaning another CPI report will have been released by the time they decide on a course of action.

The most recent economic report from the US Department of Commerce also gave strong prospects for the coming economic quarter, showing that the US economy has continued to increase at a respectable amount in 2023. However, many investors are continuing to brace for a recession that virtually all economists agree is likely in the next year, at least in part due to the high interest rates.

The other wild card is Moody’s decision earlier this month to downgrade the US federal government’s credit rating from AAA to AA+, the second time it has done so.

The international ratings agency specifically cited political instability around the debt ceiling and the willingness of US lawmakers to risk a default by making a debt ceiling increase conditional on certain policy demands. The decision will make it harder for the federal government to procure loans and could discourage foreign investment, among other effects.