U.S. Consumer Inflation Rises 0.1% in July; Shelter Costs Account for Most of Gain

U.S. consumer inflation was subdued in July, with prices rising just 0.1% from June as lower energy costs helped offset broader increases and shelter remained the main driver of the monthly gain. The Labor Department’s Bureau of Labor Statistics said Wednesday that the Consumer Price Index for All Urban Consumers, a closely watched measure of inflation, was up 3.4% from a year earlier, a slight easing from June’s 3.5% annual rate.

Excluding food and energy, so-called core CPI rose 0.2% in July after being unchanged in June. Headline CPI had fallen 0.4% in June before returning to a modest increase last month. BLS said in its release that “the index for all items less food and energy rose 0.2 percent after being unchanged in June.”

Shelter costs again played an outsized role. BLS said “the index for shelter rose 0.1 percent in July, accounting for roughly two-thirds of the monthly all items increase.” Within that category, “the index for owners’ equivalent rent rose 0.3 percent in July as did the index for rent.” Food prices also rose 0.1% in July, with food away from home up 0.3%, while the energy index fell 1.5% on the month. Over the 12 months through July, the energy index was up 14.7% and the food index was up 3.0%.

A few other categories also moved higher in July. BLS highlighted increases in medical care, airline fares, communication, education and recreation. Offsetting some of that, motor vehicle insurance declined in July, and lodging away from home also fell.

The report is one of the key monthly readings used to track the path of U.S. prices and assess interest-rate policy. The Federal Reserve held its benchmark federal funds target range at 3.50% to 3.75% at its July 29 meeting. While the central bank’s preferred inflation gauge is the Personal Consumption Expenditures price index, CPI is closely watched by policymakers and markets. Shelter carries a particularly large weight in CPI — about 35.3% in the July BLS release — which helps explain why even a modest monthly increase in that category can account for much of the overall change. On an annual basis, headline inflation edged down to 3.4% in July from 3.5% in June, while core CPI was up 2.5% from a year earlier.