By Lucia Mutikani
In July, consumer prices in the U.S. picked up modestly. However, rising costs due to import tariffs spurred a significant jump in the core inflation measure, marking the biggest increase in six months.
According to the Labor Department’s Bureau of Labor Statistics, the consumer price index (CPI) rose by 0.2% last month, following a 0.3% rise in June. Over the past year, from July 2022 to July 2023, prices increased by 2.7%, consistent with growth rates seen in June. Economists surveyed by Reuters had originally projected a 0.2% rise in the CPI for July and an annual increase of 2.8%.
When you strip out the often volatile categories of food and energy, the core CPI actually rose by 0.3%, marking the largest jump since January, up from a 0.2% increase in June. The core CPI in July showed a year-over-year rise of 3.1%, up from 2.9% the previous month.
The Federal Reserve is monitoring several inflation indicators as it aims for a 2% inflation target. Before the CPI report was released, the financial markets were anticipating interest rate cuts from the central bank in September, particularly after a lackluster employment report for July and significant downward adjustments to employment figures for May and June.
As a reminder, last month the Fed kept its benchmark interest rate within a range of 4.25%-4.50% for the fifth consecutive meeting since December.
However, the latest CPI data release has ignited worries regarding the reliability of inflation and employment statistics after budget cuts led to diminished staffing, which in turn interrupted the crucial data collection process for part of the CPI categories in various locations.
These concerns heightened after President Donald Trump removed the head of the Bureau of Labor Statistics, Erika McEntarfer, following sluggish job growth in July, coupled with steep downward revisions in the payroll counts from May and June.
SUSPENSION OF DATA COLLECTION
The disruption in data gathering can be traced back to years of underfunding for the Bureau of Labor Statistics from both Republican and Democratic administrations. The situation has worsened due to the Trump administration’s aggressive push for reductions in government expenditures and sweeping layoffs amongst public sector employees.
In light of the need to “align survey workload with resource levels,” the BLS has put a halt to CPI data collection entirely in one city each in Nebraska, Utah, and New York. Moreover, data gathering for 15% of the sample in the other 72 targeted areas has also been suspended.
This interruption has had a knock-on effect on prices and rent surveys, resulting in a temporary dip in the number of price points and rents pulled from collected data for the CPI. Consequently, the BLS has resorted to estimates to compensate for the missing data.
The proportion of different cell imputation used, where prices from different geographic areas are utilized in place of non-available pricing in a specific area, rose from 30% in May to 35% in June.
Economists acknowledge that while actions taken by the BLS might not skew the CPI data, the resulting uncertainties raise significant red flags.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Chizu Nomiyama)
