Inflation has slowed for four consecutive months, suggesting price pressures may finally be heading in the right direction after more than two years of the worst inflation crisis in a generation.
Inflation rose 2.9% year-on-year in July, down from 3% in June and back to its lowest level since March 2021, according to monthly data from the Bureau of Labor Statistics. Consumer Price Index The slowdown came even as inflation recorded its biggest monthly increase since April, driven by rising home prices, the CPI report said.
The slowdown is a positive sign for the Federal Reserve, which has been signaling to investors and consumers that it may not need to keep interest rates at their highest levels in more than 20 years for long.
Still, consumers may feel the pain of inflation. Consumer prices have risen 20.9% since February 2020, well above the average over the past four years, according to a Bankrate analysis of Bureau of Labor Statistics data. By comparison, inflation rose 18.9% in the 2010s, 28.4% in the 2000s, and 32.4% in the 1990s. The post-pandemic price hike means Americans will need about $1,209 to buy goods and services that cost $1,000 during the coronavirus recession.
Evidence is mounting that consumers are struggling under the strain of rising prices, interest rates and a slowing job market. Prices generally continued to rise last month, in line with expectations.
— Mark Hamrick, Senior Economic Analyst, Bankrate
For consumers, a little inflation is a good thing. The economy continues to grow, businesses continue to expand, hire workers, and raise wages in the process. But too much inflation can make people feel like they’re getting a pay cut. High inflation doesn’t just make things more expensive; it also makes it harder to save for an emergency or invest for retirement.
Looking for the latest information on consumer prices? We’ve compiled a list of areas where inflation is improving and areas where it remains sluggish.
Latest inflation highlights
- Headline inflation rate for July 2024: Down to 2.9% from 3% in June
- Core prices (excluding food and energy): 3.2%, down from a 3.3% increase in the previous month
- Food prices: 2.2%, consistent with last month’s 2.2%, up from 2.1% in May
- Dining out (eating out at a restaurant): 4.1%, unchanged from 4.1% in June
- Food at home (grocery items): 1.1%, the same as last month’s 1.1%, up from 1% in May.
- Services: 4.9%, down from 5% in June and 5.2% in May and April
- Energy: 1%, up slightly from 0.9% in June but down from 3.5% in May.
- Gasoline: -2.2%, down 2.5% in June, up 2.2% in May
- Auto insurance: up 18.6% from 19.5% in June, 20.3% in May and 22.6% in April
- New cars: -1% after declines of -0.9% in June, -0.8% in May and -0.4% in April
- Used cars and trucks: -10.3%, June -9.5%, May -8.6%, April -6.3%, March -1.9%
What is the current inflation rate?
The Bureau of Labor Statistics’ latest report showed inflation rose 2.9% year-over-year in July, marking the fourth consecutive month of slowing inflation. So-called core prices, which exclude volatile food and energy items, also fell to 3.2% from 3.3%, the lowest level since April 2021.
Taken together, these reflect a return to the deinflation that was benefiting consumers and Federal Reserve policymakers in the second half of 2023. Inflation is also still well below the 9.1% peak recorded in June 2022.
The most rising prices
Of the roughly 400 items tracked by the BLS, roughly two-thirds (66%) saw their prices increase between July 2023 and July 2024.
According to the BLS, the biggest price increases over the past year were:
| item | Increase from July 2023 to July 2024 |
|---|---|
| *Indicates items not seasonally adjusted | |
| Frozen still juices and beverages* | 19.2% |
| egg | 19.1% |
| Auto Insurance | 18.6% |
| Videodiscs and other media* | 15.3% |
| Filming equipment | 12.2% |
| Indoor plants and flowers | 10.6% |
| Caring for sick or elderly people at home* | 9.8% |
| Frankfurt | 9.7% |
| Admission to sporting events | 8.8% |
| Transportation Services | 8.8% |
But month-to-month price changes can give consumers a more real-time view of recent price spikes or slowdowns. For example, if prices were lower during the same period last year, it could appear that the price of a product is increasing when in fact it is slowing.
As an example, in May, energy prices increased 3.5% over the 12-month period, seemingly gaining momentum from April’s 2.5% annual increase despite a 2% monthly decline. The reason for this discrepancy is that energy costs were lower in May 2023.
But consumers need to account for seasonal fluctuations, and the BLS doesn’t seasonally adjust everything, so the year-over-year inflation rate does a better job of smoothing out those fluctuations.
According to the BLS, the biggest price increases over the past month were:
| item | Increase from June 2024 to July 2024 |
|---|---|
| Video and video game subscriptions and rentals* | 7.6% |
| egg | 5.5% |
| Frankfurt | 4.4% |
| tomato | 3.6% |
| Ham (excluding canned) | 3.4% |
| Instant coffee* | 3.4% |
| Buy, subscribe, or rent videos* | 3% |
| Tableware* | 2.9% |
| Stationery, stationery supplies, gift wrapping | 2.9% |
| Raw beef roast | 2.7% |
Why is inflation so high right now?
Consumers may see a massive 19.2% increase in the price of frozen non-carbonated beverages and wonder why the overall inflation rate is only 2.9%. Simply put, the Bureau of Labor Statistics assigns weights to each of the goods and services it tracks based on the percentage of a consumer’s monthly budget that they take up.
Currently, the main drivers of inflation are housing, transport services and car insurance.
- shelter This accounted for more than two-thirds (62%) of July’s annual increase of 2.9%.
- Transportation Services It accounted for just under a fifth (18%) of inflation over the past 12 months.
- Auto Insurance It accounts for 17% of the increase in inflation over the past 12 months.
Excluding food, energy and housing, prices rose 1.8% from a year ago, below the Fed’s preferred 2% target.
The drivers of inflation have changed dramatically since the first post-pandemic price surge. In June 2022, when price pressures peaked, house prices accounted for just 20% of annual price increases. However, as consumers emerged from lockdown with huge pent-up demand at the same time as global supply shortages, energy prices drove around a third (32%) of inflation and food prices drove 15% of inflation.
The changing drivers of inflation are as evolving as the U.S. economy. Since the pandemic, supply chains have unravelled, helping to ease pressures on goods inflation. But services like rent, insurance and dining out prices could take months, or even years, to fluctuate, depending on how labor costs and consumer spending fare.
To combat inflation, Federal Reserve officials have raised borrowing costs to a 23-year high of 5.25% to 5.5% from a low of nearly zero.
Post-pandemic inflation: what’s risen the most and what’s fallen the most
Of the roughly 400 items tracked by the BLS, only 21 (about 6%) are cheaper now than they were before the pandemic.
To be sure, prices are expected to rise in the healthiest economies, but the target is for them to rise only gradually, at around 2% per year.
According to the BLS, the top 10 items that have increased in price the most since the pandemic began are:
| item | Increase from February 2020 to July 2024 |
|---|---|
| *Indicates items not seasonally adjusted | |
| egg | 57.6% |
| margarine | 53.5% |
| Frozen still juices and beverages* | 52.3% |
| Auto Insurance | 49% |
| Other fats and oils, including peanut butter | 46.7% |
| Household appliance repair | 45.2% |
| Fuel oil | 44% |
| Auto Repair | 42.7% |
| Raw beef roast | 41.3% |
| Crackers, bread and cracker products | 40.8% |
Meanwhile, the items that have seen the biggest price declines since the pandemic began are household goods and electrical appliances, mainly due to improvements in the supply chain.
| item | Decrease from February 2020 to July 2024 |
|---|---|
| Smartphone* | -53.2% |
| Telephones, calculators and other consumer information items | -45.3% |
| tv set | -twenty three% |
| Information Technology Products | -22.7% |
| Education and Communication Products | -19.9% |
| Health Insurance* | -18.2% |
| Computer Software and Accessories* | -15.6% |
| Other Video Equipment | -15.1% |
| Men’s suits, sport coats and outerwear | -13.3% |
| Video and Audio Products | -12.5% |
Breakdown of inflation rates by product category
Want a quick analysis of how inflation is affecting the major items in your budget? Here’s what Bankrate found:
Different ways to measure inflation: PCE and CPI
- Headline inflation rate in June 2024: 2.5% y/y, down from 2.6% in May and 2.7% in April
- Core prices (excluding food and energy): Up 2.6% year-on-year, in line with the previous month’s 2.6% year-on-year increase but down from the 2.8% increases in April and March.
- Food prices: Up 1.4% year-on-year, up slightly from 1.2% in May
- Services: Up 3.9% year-over-year, down slightly from 4% in May
- Energy products and services: Up 2% year-over-year, following a 4.8% increase in May
Fed policymakers look at the bigger picture of economic data when setting interest rates, but officially they prefer a different measure, the Commerce Department’s personal consumption expenditures (PCE) index, to gauge how well the central bank is keeping inflation in check.
But those preferences are making Fed watchers nervous: The PCE index has recently signaled slowing inflation, with overall prices running 0.5 percentage points above the Fed’s target, a tougher figure than the 0.9 percentage point CPI reading.
These differences have always existed, mainly due to methodological differences: First, PCE takes into account consumer substitution (for example, a family’s decision to buy fish over meat one month because it is cheaper).
But another key difference has been to blame recently: The two agencies assess the relative importance of items differently, and the BLS measure happens to place the most weight on housing, the area of inflation that is rising the fastest.
For Fed officials, the story is much the same: Inflation has improved significantly since hitting a 40-year high in 2022.
Lessons for consumers
Slower inflation would give the Fed room to eventually cut interest rates and give consumers a chance to regain some lost purchasing power. Still, prices are still higher than they would have been had the pandemic not occurred, highlighting one of the reasons Americans are still feeling the shock of higher prices.
Meanwhile, how much the Fed cuts interest rates will depend on how quickly inflationary pressures return to the Fed’s 2% target and how sustained economic growth is. Hiring has weakened, with the unemployment rate hitting its highest level since fall 2021 in July.
- For now, the Fed is expected to keep interest rates historically high. Fed Chairman Jerome Powell and his colleagues have signaled they could cut rates as soon as their next meeting in September, which would bring the Fed’s main borrowing standard back to levels not seen since 2023, when it was at its highest since 2006.
- Compare as much as possible: We know that consumers compare offers from multiple lenders before finalizing a loan. Why not do the same with the items you buy regularly? Compare prices at multiple retailers, see if any offer a price match, and create a budget. If an item or material has caused you to go over your spending goal, consider swapping it for a different item.
- Use the personal finance tools available to you. Finding the right credit card that lets you earn points on items you were already planning to buy is another way to pad your wallet, but be careful not to carry a balance — a 20.79 percent interest rate will never beat the cash back.
- Save for emergencies and find the right account: Historically, investing in the market has been the best way to beat inflation, but in today’s high interest rate era, savers can earn market-like returns without the risk. As the Fed begins to cut interest rates, savings rates will fall, but returns can still outpace inflation. Lock in those high yields over the long term by putting your cash in a high-yield account or adding certificates of deposit (CDs) to your portfolio.
