US consumer prices increase moderately; worries about data quality rise

Reuters

2 days ago

WASHINGTON, Aug 12 (Reuters) - 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 Labor Department's Bureau of Labor Statistics on Tuesday did not change financial market expectations that the Federal Reserve would cut interest rates in September amid signs of a deterioration in labor 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.
Trump on Monday nominated Heritage Foundation economist E.J. Antoni, a critic of the BLS, to head the statistics agency. Antoni was a contributor to "Project 2025," the controversial conservative plan to overhaul the federal government.
"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.
The cost of household furnishings and supplies rose 0.7%, while footwear prices surged 1.4%. Motor vehicle parts and equipment prices vaulted 0.9%, driven by a 1.0% increase in the cost of tires.
The core CPI increased 3.1% on a year-over-year basis in July after an advance of 2.9% in June.
The U.S. central bank tracks different inflation measures for its 2% target. The Fed left its benchmark overnight interest rate in the 4.25%-4.50% range last month for the fifth straight time since December.
U.S. stocks opened higher. The dollar slipped against a basket of currencies. U.S. Treasury yields fell.
The BLS has suspended data collection after years of what economists described as the underfunding of the BLS under both Republican and Democratic administrations. The situation has been exacerbated by the Trump White House's unprecedented campaign to reshape the government through deep spending cuts and mass layoffs of public workers.
Citing the need to "align survey workload with resource levels," the BLS suspended CPI data collection completely in one city in Nebraska, Utah and New York. It has also suspended collection on 15% of the sample in the other 72 areas, on average.
This move affected both the commodity and services pricing survey as well as the housing survey, which the BLS said resulted in the number of collected prices and the number of collected rents used to calculate the CPI being temporarily reduced. That has led the BLS to use imputations, opens new tab to fill in the missing information.
The share of different cell imputation in the CPI data jumped to 35% in June from 30% in May.
Different cell imputation, which the BLS uses when all prices are unavailable in the home cell, maintains the item category but expands geography. The home cell method, considered by economists as higher quality, uses the average price of the same item in the same location as the missing product's price.
The use of different cell imputation has grown from a share of only 8% in June 2024. Economists said while these measures adopted by the BLS will not introduce bias in the CPI data, the volatility was a cause for concern.