Latest U.S. Inflation Data Unearths Potential Fed Rate Hike and More

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Aug. 11 2021, Published 2:12 p.m. ET

Reading news about inflation can feel like living through Groundhog Day over and over again. Still, looking into the data can help U.S. citizens understand the scope of the economy and the implications of the ongoing COVID-19 pandemic. The BLS (Bureau of Labor Statistics) released the latest inflation data in the form of the CPI (consumer price index) on Aug. 11.

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What does the CPI say about the state of U.S. inflation? What's to come for the near-zero Fed rate that has propelled industries like housing into bubble-like territory?

Inflation is a hot topic for Republicans against the infrastructure bill.

President Biden's infrastructure bill is now en route to the House of Representatives for a budget resolution that will likely take months. Some Republicans are against it, like Senators Ron Johnson (R-Wis.), Mike Lee (R-Utah), and Rick Scott (R-Fla.). They have criticized the bill for its negative impact on the U.S. national debt, inflation, and taxes.

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For clarity, Democrats aim to fund the bill largely with a tax hike for corporations and wealthy citizens, although this might be difficult in budgetary discussions.

Infrastructure bill or not, inflation is up for July 2021

Regardless of the infrastructure bill's status and logistics, the CPI data for July 2021 is telling.

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The CPI U.S. city average for all items is up 0.5 percent. That's an all-around increase of 5.4 percent since July 2020.

The CPI for medical care is up 0.2 percent, with just a 0.3 percent boost since July 2020. That's a much slimmer margin than the generalized statistic shows.

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Energy (specifically energy commodities) accounts for the bulk of the inflation change.

All in all, the 0.5 percent inflation boost is big. However, it's lower than data from March to June 2021 when the CPI fluctuated between 0.6–0.8 percent monthly growth.

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It's worth noting that not every state experiences the impact of inflation at the same rate. On the BLS website, drill down to geographic information for the CPI and you can select your state for the most relevant information.

A Fed rate hike is inevitable—but when?

In June, the Fed announced that it would be speeding up the timeline for raising the Fed rate from its current 0.25 percent—the same rate it was at this time last year. At that point, Powell reported an outlook of 2023 for a rate hike. That's about a year sooner than previously estimated, when the Fed suggested a 2024 timeline.

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By July, Powell said that the Fed hadn't even come close to considering increasing the Fed rate. "We see ourselves having some ground to cover to get there," Powell said frankly.

In short, the government awaits a major economic improvement before clamping down on any hard and fast rate hikes. The economy continues to recover, the COVID-19 pandemic continues to throw obstacles, and the Fed continues to tweak the economic structure of the U.S. as a way to (hopefully) ameliorate the difficulties that we face.

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