“US consumer prices rose at a more moderate pace in July, up 0.5% from June, somewhat lower than expected by the key measure 0.3% month-on-month. As in previous months, most of the increase was attributed to COVID-sensitive goods and services. which still face supply disruptions and bottlenecks.
Given that consumers appear relatively less price sensitive at this point in time, retailers are able to pass on the higher input costs. However, due to the fall in surplus savings and a resurgence in demand, we expect spending habits to return to normal in the coming months.
Some price measures, such as airfares and for used cars, which saw massive gains recently, are back in a normal range. However, food and shelter are showing signs of rising price pressure. Overall, the July CPI report shows signs of normalization, which should give the Fed more confidence in the transitory nature of inflation and thus limit if any impact on the central bank’s policy trajectory.
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