Gasoline, Medical Care Push Consumer Prices Up 0.6% For Second Straight Month

Gasoline and medical care prices pushed inflation up a seasonally adjusted 0.6% in July, the largest increase since January 1991, pushing the annual rate to 1%, the Bureau of Labor Statistics reported Wednesday. The increase mirrored June’s results and reverses declines in March, April and May.

The rise in the Consumer Price Index, which measures what consumers pay for basic items, was fueled by a sharp increase in gasoline prices, which rose 5.6% but was offset by a 0.4% drop in food prices. Grocery prices fell 1.1%. Medical services were up nearly 6% from year-ago levels.

Core inflation, excluding food and energy prices, rose 0.6%, compared to 0.2% in June, to an annual increase of 1.6%.

The increases are seen as a rebound in demand despite the recent surge in coronavirus cases that has forced some states to backtrack on reopening plans. The Federal Reserve recently raised its inflation target from an annual 2%, pledging to keep interest rates low.

“The index for motor vehicle insurance increased sharply in July, as it did the previous month. The indexes for shelter, communication, used cars and trucks, and medical care also increased in July, while the index for recreation declined,” BLS said.

“Food costs remain elevated, despite the July drop. The persistence of food-based inflation couldn’t come at a worse time, when the supplemental $600 per week in UI [unemployment insurance] benefits lapsed. This makes it even harder to cover the costs of the basics of food and shelter,” tweeted Diane Swonk, chief economist at Grant Thornton.

Swonk noted the increase in food prices were the result of processing plant closures and decisions by farmers to let crops rot in the fields because of a drop in demand by restaurants resulting from coronavirus-mandated closures.

Clothing prices rose 1.1% in July compared to 1.7% in June. Used car prices were up 2.3% while new vehicle prices rose 0.8% -- the gains were the most since 2010 and 2011, respectively. Auto insurance was up 9.3% following rebates in April because of reduced traffic. Airfares were up 23.7%, the biggest year-on-year increase in more than two decades.