U.S. Inflation Dipped to 8.5% in July

Gasoline price decline helped to offset higher costs for food.

August 10, 2022

ALEXANDRIA, Va.—The U.S. Department of Labor reported today that the consumer price index increased 8.5% in July compared with July 2021, down from June’s 9.1% CPI reading.

The gasoline index declined 7.7% in July, helping to ease the sting of increases in costs for food (+1.1%) and shelter (+0.5%). The food-at-home index rose 1.3%, while the food-away-from-home index rose 0.7%.

The energy index fell 4.6% as prices for gasoline and natural gas fell, but the index for electricity rose.

The index for all items less food and energy rose 0.3% in July, a smaller increase than in April,
May or June, the Labor Department said. The indexes for shelter, medical care, motor vehicle insurance, household furnishings and operations, new vehicles and recreation were among those that increased over the month.

Separately, research from Numerator indicates that grocery prices set a new record in July. Prices were up 15.4% versus a year ago for the four-week period ended July 31, after leveling off in early July.

Within grocery, snack and beverage prices are outpacing total grocery inflation, with snack prices up 19% and beverages up 18.1%, doubling since the beginning of the year, Numerator found. Inflation rates in the categories of meat (+14%), produce (+9%) and alcoholic beverages (+3.7%) remain elevated, though they lag behind total grocery.

The online and dollar channels remain the most impacted, with online grocery prices up 25.7% versus a year ago and dollar-store prices up 22.4%. Also, the club channel reached double-digit inflation for the first time in July. While club stores’ grocery inflation rates continue to trail other channels, July marked the first time that inflation reached +10%, before settling back to +9.3% by the end of the month.

Looking at demographics, grocery inflation is now impacting the different generations more evenly, reports Numerator. In contrast to disproportionate impacts seen earlier in the year, inflation rates have spread more evenly across consumer cohorts in July, with slightly elevated impact among suburban, low income and Gen Z consumers (+16.1%, +15.5%, +16.3%, respectively).

Overall spending is up across most major channels after a softening in demand in late June. Overall spending is on the rise again in July, up 26% versus a year ago, driven by higher spending per trip (+14%). However, in-store spending declined as consumers shopped online in July. Following steady increases throughout 2022, in-store spending began to dip in July, down 7 points from June highs of +23%, though still up from this time last year.

Numerator also noted that consumers are cutting back on dining out. QSRs are seeing declines in both sales and trips in July—each down about 10 points from June 2022 levels.

Consumers are anticipating less inflation in the coming years, reports the Wall Street Journal. Respondents to a survey by the Federal Reserve Bank of New York expect inflation in three years to be at 3.2%, down from the 3.6% they expected in June, and inflation in five years to be at 2.3%, down from a previous 2.8%.

Although economists don’t rely on these types of surveys as a concrete prediction of inflation, they do look closely at the responses since popular psychology can influence price pressure. Also, Federal Reserve officials believe that if consumers expect higher inflation, than it may become self-fulfilling. If people believe there will be an increase in prices, they may ask for higher wages in anticipation of higher costs in the future, causing inflation to accelerate.

Inflation rose to 9.1% in June, which was a new four-decade high, and consumer prices were up 6.8% in June. Economists surveyed by The Wall Street Journal in July expected inflation to ease but remain elevated at a 6.8% annual rate by December, on average, as measured by the CPI.

The survey also found that consumers expect food and gas prices to rise more slowly in the next few years. In July, they expected gasoline prices to increase 1.5% in one year, compared with 5.6% in the June poll. They expected food prices to increase 6.7%, down from their June expectations of 9.2%.

According to Jason Reed, a professor at the University of Notre Dame, because food and gas prices are so visible to the consumer, they have a large part in how consumers are measuring the economy. Gas prices have fallen every day for over 50 days, and the average price of a gallon of regular gas is $4.01 nationally, according to AAA.

“You are starting to see consumers change their expectations,” Reed told the Journal.