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Inflation has been falling over the last 12 months. July data ended the streak


You wouldn't know it from some headlines, but inflation has been falling steadily for the last year. Finally, this morning, the streak was broken. The Labor Department says consumer prices in July were up 3.2% from a year ago. That is a modest increase in the annual inflation rate from a 3% reading in June. NPR's Scott Horsley is following all this. Scott, good morning once again.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: What's behind this increase?

HORSLEY: It is partly just a matter of math. Prices were flat last July, so if there were any increase between June and July this year, that was going to raise the annual inflation rate. And prices did rise 2/10 of a percent between June and July this year. Most of that was because of rising rents. But we also saw a modest uptick in the price of groceries and gasoline last month. The average price of gas is still well below its record $5 mark we saw last summer. But pump prices are putting a little upward pressure on inflation. Petroleum analyst Patrick De Haan, who's with GasBuddy, blames those production cuts in Saudi Arabia for driving up crude oil prices, as well as hotter than usual weather on the Gulf Coast, which has made it harder for refineries to turn crude oil into gasoline.

PATRICK DE HAAN: Oil prices finally broke out of their kind of well-established range and didn't get any help by some of the triple-digit temperatures down in Texas and Louisiana. That caused some issues on the refining side.

HORSLEY: Keep in mind, though, while gas prices pack a big psychological punch, they're actually a pretty small piece of the overall inflation picture. Gasoline accounts for less than 3.5% the consumer price index.

INSKEEP: It is a big psychological punch. The other day, I was driving past a gas station and saw that, that particular station, it was up to 4.99 again. I was like, wow. That's like last year. That was really notable. But you're saying other things are more significant. So what is happening with the prices of other things?

HORSLEY: Well, energy prices may come down as we move into the fall. You know, electricity prices dipped a little bit in July and they're expected to come down further. Demand for gas typically falls once kids go back to school. Also, in mid-September, refiners will be able to switch over to the cheaper winter blend of gas. So this summer spike we've seen in gas prices could be short-lived, De Haan says, unless we get a tropical storm in the Gulf, in which case all bets are off.

DE HAAN: That's the other wildcard. If we get hit by a hurricane, that could pose problems not only for oil production at a time that the Saudis are cutting back - think of all those rigs in the Gulf of Mexico - but that also could really hit us on refining. And you can't make up for lost time.

HORSLEY: We have also begun to see some easing in rental inflation. And we expect to see more of that based on what's happening with new leases that are out there. It takes time for real-time rental prices to make their way into the official government data.

INSKEEP: What happens when you weave in even more prices of different goods and services?

HORSLEY: Well, you know, economists typically like to look beyond food and fuel prices, which go up and down a lot. So the so-called core inflation rate last month was 4.7%. That was down slightly from 4.8% in June. New car prices were down a little bit in July, and used car prices were down pretty sharply. What's more, airfares plunged more than 8% last month after a similar drop the month before. Even though demand for air travel is still pretty strong, airlines have basically caught up on supply, so airfares have lost a lot of altitude from a year ago. The Federal Reserve is paying close attention to the price of other services, things like getting your car repaired or going to the dentist. People spend a lot of money on those services, so those do have the potential to keep inflation elevated.

INSKEEP: Airfares have lost altitude. I saw what you did there, Scott. Thank you very much. Is the Fed likely to respond to this with more interest rate hikes?

HORSLEY: Right now, the market is betting the Fed will leave interest rates where they are. But the Fed's next meeting is not until late September. So we'll have another month of inflation data under our belts before the Fed has to make that decision.

INSKEEP: NPR's Scott Horsley, always with high-altitude reporting. Thanks so much.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Steve Inskeep is a host of NPR's Morning Edition, as well as NPR's morning news podcast Up First.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.