Inflation slows in latest data, but some economists don't think the danger has passed
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Inflation slowed in July, giving economists (and the stock market) more confidence that this year's rise has been transitory, sparked largely by booming car prices. But others still don't think the danger has passed.
For instance, Capitol Economics' takeaway is that the July data "suggest that the initial burst of stronger inflation is now fading, but it is still much too soon to dismiss the risks of a more prolonged period of higher inflation over the coming years."
Harvard University's Jason Furman, who served as an adviser to former President Barack Obama, said that while vehicle prices moderated as expected, "price increases have been widespread" and are not just the result of "just a few freakish categories," adding that "some shoes have yet to drop," namely shelter. Right now, rent prices are low, but likely to rise more swiftly soon, which could have a significant affect on the situation.
This is not base effects or transitory categories. The price increases we've seen have been widespread & not just a few freakish categories. Taking out food, shelter, energy and used cars/trucks (a standard BLS series), prices are above trend and rising faster than trend. pic.twitter.com/5ehrwHByFw
— Jason Furman (@jasonfurman) August 11, 2021
Finally, some shoes have yet to drop. Rent was really low again this month (+0.2%) and owner's equivalent rent also low (+0.3%). Overall shelter is below trend and likely to rise faster. This would be huge for the CPI and large for the PCE. pic.twitter.com/s0GC6OT1Rn
— Jason Furman (@jasonfurman) August 11, 2021
If core inflation continued at the July rate for 12 months, Furman notes, annual inflation would hover around 4 percent, a figure he doesn't believe the Federal Reserve will tolerate. However, his "best guess" is that the rate will continue to moderate and settle in around 3 percent. That's still higher than the Fed's preferred level, though Furman told The Associated Press earlier this year that 3 percent won't necessarily be "terrible" if the right monetary policy is in play and wages can keep pace.
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