Competitive Enterprise Network

The Consumer Price Index ticked up slightly from June to July, but CEI Senior Economist Ryan Young explains why the true inflation problem was masked by falling energy prices.

“The overall inflation picture stayed about the same in July compared to June. The headline annual CPI number went up from 3.0 percent in June to 3.2 percent in July. The core CPI number, which gives a better picture of the monetary inflation the Fed bases its decisions on, improved slightly, from 4.8 percent to 4.7 percent.

“The biggest source of the difference between the overall and core CPI numbers is energy prices, which have fallen 12.5 percent over the last year. This fall is due to supply and demand, not the money supply, so it makes the overall CPI number look better than it really is. That is one reason why the headline number gives a poor picture of actual inflation.

“Both overall and core CPI remain well above the Fed’s 2 percent target and likely will for some time. The Fed’s next interest rate decision will be in September. There will be one more CPI release between now and then, so this month’s release won’t play that much a role in whether the Fed increases rates again this fall.”