Plunging Gas Prices Lead to Flat CPI, Big Jump in July Real Wages

August 10, 2022

The July Consumer Price Index data are a mixed picture. The plunge in gas prices means money in people’s pockets, but food prices are still rising rapidly. 

There is also a mixed story on supply chain issues: new vehicle prices are still rising sharply, and the same is true with other items like household furnishings. But there are now many areas showing price declines.

There is a small moderation in rents. This is very good news, but we will need to see much more in the months ahead.

In short, we are seeing good news overall because of gas prices. As supply chain issues get resolved, we should have better news in the core index. Also, with the price of many food commodities falling in world markets, we may see some good news on food prices

Gas prices fell 7.7 percent in July but are still up 44.0 percent year-over-year. The CPI for July only captures part of the drop in gas prices since it is a monthly average. The decline in gas prices is likely to be even larger in August, which should guarantee another low monthly CPI.

The flat CPI means that real wages rose 0.5 percent in July. The core index rose 0.3 percent, up 5.9 percent over the year.

Both rent indexes slowed slightly in July. The rise in the rent proper index fell from 0.8 percent in June to 0.7 percent in July, up 6.3 percent year-over-year. The owners equivalent rent index increased 0.6 percent in July after rising 0.7 percent in June, up 5.8 percent year-over-year.

There is another big jump in food at home prices, which rose 1.3 percent in July, up 13.1 percent over the last year. Within the food category, cereals and bakery products were up 1.8 percent, eggs up 4.3 percent (38.0 percent year-over-year), dairy up 1.7 percent, and nonalcoholic beverages 2.3 percent. On the positive side, beef prices were flat after falling in the prior three months, up 3.4 percent year-over-year.

Restaurant prices, which typically outpace food prices by roughly 1.0 percentage point, rose 0.7 percent in July, up 7.6 percent year-over-year. Higher wages in the sector do not seem to be a big factor in driving prices.

We’re still seeing supply chain issues in many areas. The household furnishings and supplies index rose 0.6 percent in July, up 10.8 percent year-over-year. On the plus side, the index for major appliances fell 2.2 percent, now up 4.6 percent year-over-year. Apparel prices also edged down 0.1 percent after large increases the prior two months; they are still up 5.1 percent year-over-year.

We’re still not seeing the end of supply disruptions in auto manufacturing. New vehicle prices are up 0.6 percent in July, 10.4 percent year-over-year. Used vehicle prices fell 0.4 percent but are still up 6.6 percent year-over-year.

Television prices, which had risen sharply in the spring and summer of 2021, fell 0.8 percent; now down 14.6 percent year-over-year.

Hotel prices fell 3.2 percent in July after dropping 3.3 percent in June, now up just 1.3 percent year-over-year.

Medical care service prices rose 0.4 percent in July, up 5.1 percent year-over-year. This is largely driven by the health care insurance index, which was up 2.2 percent in July, and 20.6 percent year-over-year.

Airfares fell 7.8 percent in July after dropping 1.8 percent in June. But they are still up more than 12.0 percent from the pre-pandemic level, likely driven, in large part, by fuel costs.

Auto insurance was up 1.3 percent in July after rising 1.9 percent in June. This is partly “catch up.” The index is up less than 7.0 percent from the pre-pandemic level. The car rental index fell 9.5 percent in July after dropping 2.2 percent in June but is still more than 40 percent above the pre-pandemic level. This is encouraging since it likely indicates that they have rebuilt their car fleets.

CEPR produces same-day analyses of government data on employment, inflation, GDP and other topics.
Follow @DeanBaker13 on Twitter to get his quick-take analysis of government data immediately upon release.

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