Consumer prices increased 5.3% in the year ending in July, according to a report released on Tuesday by the Department of Labor.
The numbers from the consumer price index came in line with forecast expectations and raise concerns that inflation is coming in too hot as the country continues its recovery from the COVID-19 pandemic.
The August report on inflation was highly anticipated because it comes after a jobs report that was far worse than expected. The economy added just 235,000 new jobs last month, far fewer than the 750,000 that were expected. Despite the meager gains, the overall unemployment rate dropped slightly from 5.4% to 5.2%.
ECONOMISTS LOWER THIRD-QUARTER GROWTH FORECASTS OVER DELTA VARIANT AS INFLATION RUNS HOT
Bankrate’s chief financial analyst Greg McBride said that the inflation numbers were underscored by “easing price pressures” in some of the industries that saw the hottest inflation just months ago, which he said speaks to the potentially transitory nature of the increases.
“The debate over whether inflation will be short-lived or more sustained has not been resolved. The jury will remain out for many more months, particularly with persistent supply chain constraints,” McBride said.
Inflation has been higher in recent months than the Federal Reserve and many economists anticipated earlier this year. The consumer price index registered its highest year-over-year gains since 2008 in June and July when it clocked in at a whopping 5.4%.
The Federal Reserve has not tightened its monetary policy to dampen inflation but has rather kept with the easy-money policies it has maintained since the start of the COVID-19 pandemic. Fed officials have said that they don’t intend to raise interest rates until inflation is running at 2% and the economy is at full employment. There are still millions of fewer people employed now than in February of last year, when the unemployment rate was at 3.5%.
The delta variant, which resulted in an enormous surge in virus cases, hospitalizations, and deaths in recent weeks, is adding to the anxiety surrounding the economy. While there is some hope that a peak is in sight, the new cases have resulted in some economic strain.
Last week, Goldman Sachs revised down its GDP forecast for 2021 from 6.2% to 5.7%. It was the banking giant’s second revision in the past month after it chopped its growth expectations for the third quarter.
Wells Fargo also revised down its third-quarter GDP estimate by 2.25 percentage points to 4.6% and cut its fourth-quarter projections slightly to 5.7%.
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Despite the revisions, both firms believe that economic ills brought on by the delta variant will be transient and predict further growth and recovery in the coming year.
