Core consumer prices in July gained the most since January 1991, as many categories of consumer goods stabilized after the initial broad pandemic-induced lockdowns. While news headlines may seem to paint a picture of a new inflationary environment, excess capacity in the economy remains disinflationary and problematic.
The economy has slowed since mid-June. This implies weaker demand ahead, much like that seen in the July reversal of food prices. Our chart of the day shows a 0.4% month-over-month decline, likely the result of households preparing for a loss of income due to the congressional impasse over the extension of expanded unemployment insurance benefits. If policymakers fail to reach an agreement by Sept. 1, food insecurity will likely become an unfortunate front page topic after the Labor Day holiday.