Inflation went up again in July, Fed indicator shows

Inflation in the United States rose sharply again in July, the Federal Reserve’s preferred measure of prices showed, a pandemic-related jump that is expected to fade but will keep pressure on policymakers until it does.

The Personal Consumption Expenditures index, the measure of price gains that the Fed uses as its official target, rose 4.2 percent last month compared with a year earlier, the Commerce Department said Friday.

The increase was higher than the 4.1 percent jump that economists in a Bloomberg survey had anticipated and the fastest pace since 1991.

The measure climbed 0.4 percent from June, in line with a 0.4 percent rise projected by economists.

The data, based on household spending on goods and services, comes as the Fed is considering when and how to begin slowing its large-scale bond purchases, its first step toward a more normal policy setting as the economy heals.

Speaking at an annual gathering of economists and central bankers, Jerome Powell, the Fed chair, indicated he favors slowing the bond purchases starting this year, while making it clear that the central bank is closely monitoring risks tied to the delta variant of the coronavirus.

“The Fed has to show patience in the face of the inflation we have,” said Diane Swonk, chief economist at Grant Thornton. “The data is more backward than forward looking, and the course of the virus determines the course of the economy.”

Personal income increased 1.1 percent in July from June, a figure bolstered by reopening businesses and the Child Tax Credit payments created as part of the American Rescue Plan.

During a July meeting, Fed officials debated over when to slow bond purchases, with some members arguing that it should be done soon to guard against the risk of higher inflation.

Others argued for a slower process, stressing that rising delta variant coronavirus cases across the U.S. posed risks to the economic outlook.

The Fed is holding interest rates near zero, and officials have suggested that they may favor raising interest rates by late 2022 or — more popularly — 2023. They would like to see the labor market return to full employment before raising rates.

Other measures of inflation have also moved up this year. The Consumer Price Index, a related gauge that comes out earlier in the month, climbed 5.4 percent in July compared with a year earlier. Wage increases also offer signals about the future of inflation.

Average hourly earnings rose 4 percent in July from a year earlier, and wages for nonsupervisory and production workers — which can give a clearer reading on what’s happening for typical workers — have climbed 4.7 percent over the past year.

“The economy is still recalibrating, which might take longer due to the resurgence of COVID,” said Lindsey Piegza, chief economist for Stifel Financial. “As we look forward, there are risks that remain that could exacerbate the trend of rising costs.”