US Consumer Prices Increase Moderately; Worries About Data Quality Rise

• U.S. consumer prices increased moderately in July, though rising costs for services such as airline fares and some tariff-sensitive goods like household furniture caused a measure of underlying inflation to post its largest gain in six months. The mixed report from the Labour Department's Bureau of Labour Statistics (BLS) on Tuesday did not change financial market expectations that the Federal Reserve would cut interest rates in September amid signs of a deterioration in labour market conditions.
• Economists, however, cautioned that higher prices from President Donald Trump's sweeping tariffs were still coming. They argued that businesses continued to sell merchandise accumulated before the import duties came into effect.
• While financial markets breathed a sigh of relief on the data, concerns are mounting over the quality of inflation and employment reports following budget and staffing cuts that have resulted in the suspension of data collection for portions of the Consumer Price Index basket in some areas across the country. Those worries were amplified by the firing of Erika McEntarfer, the head of the BLS, early this month after data showed stall-speed job growth in July.
• "Investors might want to hold back on the no-inflation celebration, however, because the goods sitting on store shelves arrived on boats months ago and the tariff hikes have yet to be applied to the goods on ships steaming the consumers' way right now," said Christopher Rupkey, chief economist at FWDBONDS. "Inflation is coming."
• The CPI rose 0.2% last month after a gain of 0.3% in June. The moderation reflected a 2.2% decline in gasoline prices. Food prices were unchanged after rising 0.3% for two straight months. Grocery store food prices fell 0.1% as a 3.9% drop in the cost of eggs more than offset a 1.5% increase in beef prices and 1.9% rise in the cost of milk.
• In the 12 months through July, the CPI advanced 2.7%, matching the rise in June. Economists polled by Reuters had forecast the CPI would rise 0.2% and increase 2.8% on a year-over-year basis. Excluding volatile food and energy components, the CPI rose 0.3%, the biggest gain since January, after climbing 0.2% in June. The so-called core CPI was lifted by higher prices for services, including a 4.0% rebound in airline fares as well as strong increases in the costs of healthcare and dental services.

(Source: Reuters)