Inflation ticked up in July, pausing a year of slowing price growth

• The Consumer Price Index was up 3.2% over the year in July.
• That's up from June's 3.0% increase and just below economists' forecast of 3.3%.
• The Fed raised interest rates in July amid elevated inflation.

The Consumer Price Index or CPI climbed 3.2% year over year in July, according to non-seasonally-adjusted data from the Bureau of Labor Statistics published Thursday.

Inflation as measured by the CPI was expected to accelerate, with a year-over-year CPI forecast of 3.3% for July after June's 12-month change of 3.0%.

Tom Garretson, senior portfolio strategist for RBC Wealth Management, noted a forecast of 3.2% for the CPI increase in his commentary ahead of the data release. Garretson said July's acceleration from June's change "should be dismissed by markets as it will be largely due to year-ago comps." Namely, "monthly inflation was negative in July 2022 making the year-to-year change appear higher."

Inflation had been cooling for 12 straight months before the latest CPI release.

Additionally, CPI rose by 0.2% from June to July according to seasonally adjusted data. That's the same increase seen from May to June. The forecast for this month-over-month change was an increase of 0.2%.

"The monthly increase of 0.2% in the Consumer Price Index is right on target and represents the kind of progress needed to get inflation down to a sustainable 2% annual rate," Greg McBride, Bankrate's chief financial analyst, said in commentary after the new CPI data was out. "Don't be distracted by the year-over-year increase rising from 3% to 3.2% since last month's release, as this is due to the 'base effect' of the July 2022 0.0% change in CPI dropping off and being replaced by 0.2% this month."

Core CPI, which excludes food and energy, rose 4.7% in the 12 months ending July. That increase is around the forecast, a year-over-year increase of 4.8%. Core CPI had surged by 4.8% year over year in June. Year-over-year percent changes in core CPI have recently been cooling month after month according to data before the latest release.

With a year-over-year increase of 7.7%, the shelter index made up "over two-thirds of the total increase in all items less food and energy," per Thursday's news release from the Bureau of Labor Statistics. The release also noted this index was "by far the largest contributor to the monthly all items increase." Shelter climbed by 0.4% month over month in July, equivalent to the 0.4% rise in June.

Seasonally adjusted month-over-month data showed core CPI increased by 0.2% from June to July. Core CPI was expected to rise by 0.2% like it did in June.

The food index surged 4.9% year over year in July. Food away from home saw a larger increase year over year than food at home, at 7.1% and 3.6% respectively.

While food prices soared over the 12 months ending July, energy plunged by 12.5% year over year. Used cars and trucks also declined by 5.6% from July of last year to July of this year.

The 0.2% increase in the month-over-month CPI for July contributed to an uptick in real earnings. A news release from the Bureau of Labor Statistics on Thursday noted real average hourly earnings were up by 0.3%.

"The easy work in bringing inflation rates down is complete, further progress will continue, but at a slower pace," Garretson said in commentary before the CPI release.

The Fed raised interest rates by 25 basis points in July after a pause in June. The recent hike announcement was just one of many, besides the pause, as the Fed has been trying to fight inflation.

"Inflation has moderated somewhat since the middle of last year. Nonetheless, the process of getting inflation back down to 2% has a long way to go," Jerome Powell, Federal Reserve chair, said at a press conference in July. "Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets."