Today, August 10, the Bureau of Labor Statistics (BLS) released the July 2023 Consumer Price Index (CPI). The CPI in June was 3.3% higher than a year ago, still over the Fed's 2% target but much reduced from the peak experienced thirteen months ago, when the annual inflation rate came in at 8.9% for June 2022.
Looking just at the one-month change from this June, the CPI increased 0.2%, an annualized rate of 2.0%. Inflation has definitely moved far in the direction of getting back to the Fed's target.
The core CPI, or CPI less food and energy, was up 4.7% from a year ago, substantially higher than the headline CPI. Basically, food and energy prices have been a moderating influence on the CPI inflation rate, and those items are excluded from the core CPI measure. The one-month change in the core CPI was low, however, at 0.2%, an annualized rate of 1.9%. Monthly rates are of course notoriously volatile, but the CPI report is mostly good news for the economy, and for the Fed, on the inflation front.
Figure 1 plots the year-over-year headline and core CPI inflation rates, as well as the annualized monthly headline and core CPI rates. The volatility of the monthly rates is apparent. The somewhat lower volatility of core inflation can be discerned, and the fact that core inflation lagged behind headline inflation up until June 2022, but since then core inflation has tended to be above headline inflation. The gradual decline in headline inflation since June 2022, and the much more gradual decline in core inflation, can also be seen. Finally, the one-month core inflation rates for the last two months have been discernably lower than the preceding months, and if this continues in coming months, then the year-over-year core inflation rate will also decline toward the Fed's target inflation rate.
The BLS also released wage data last week, and average hourly earnings of all private sector workers increased by 0.4% from June to July, an annualized rate of 5.1%. Wages in July 2023 were 4.4% higher than in July 2022.
Economists typically look at real wages, or wages adjusted for inflation. An increase in real wages is an increase in the purchasing power of wages. Wages in July increased 0.4% while prices increased 0.2%, so real wages increased by 0.2%, or at an annualized pace of 3.0%. Year-over-year, wages increased 4.4% while prices increased 3.3%, so real wages increased by just over 1.0%. This marks five consecutive months of increasing real wages. Workers are finally seeing wage increases that actually result in increased purchasing power. Still, real wages are 2.7% lower than in January 2021.
Figure 2 graphs wages, the CPI, and real wages since January 2021. The decline in real wages from January 2021 through June 2021 is apparent in the data, as the CPI grew faster than wages. The moderation of CPI growth starting in June, and the continued growth in wages, led to a period of generally positive but small real wage increases over the past ten months.
Looking just at the one-month change from this June, the CPI increased 0.2%, an annualized rate of 2.0%. Inflation has definitely moved far in the direction of getting back to the Fed's target.
The core CPI, or CPI less food and energy, was up 4.7% from a year ago, substantially higher than the headline CPI. Basically, food and energy prices have been a moderating influence on the CPI inflation rate, and those items are excluded from the core CPI measure. The one-month change in the core CPI was low, however, at 0.2%, an annualized rate of 1.9%. Monthly rates are of course notoriously volatile, but the CPI report is mostly good news for the economy, and for the Fed, on the inflation front.
Figure 1 plots the year-over-year headline and core CPI inflation rates, as well as the annualized monthly headline and core CPI rates. The volatility of the monthly rates is apparent. The somewhat lower volatility of core inflation can be discerned, and the fact that core inflation lagged behind headline inflation up until June 2022, but since then core inflation has tended to be above headline inflation. The gradual decline in headline inflation since June 2022, and the much more gradual decline in core inflation, can also be seen. Finally, the one-month core inflation rates for the last two months have been discernably lower than the preceding months, and if this continues in coming months, then the year-over-year core inflation rate will also decline toward the Fed's target inflation rate.
The BLS also released wage data last week, and average hourly earnings of all private sector workers increased by 0.4% from June to July, an annualized rate of 5.1%. Wages in July 2023 were 4.4% higher than in July 2022.
Economists typically look at real wages, or wages adjusted for inflation. An increase in real wages is an increase in the purchasing power of wages. Wages in July increased 0.4% while prices increased 0.2%, so real wages increased by 0.2%, or at an annualized pace of 3.0%. Year-over-year, wages increased 4.4% while prices increased 3.3%, so real wages increased by just over 1.0%. This marks five consecutive months of increasing real wages. Workers are finally seeing wage increases that actually result in increased purchasing power. Still, real wages are 2.7% lower than in January 2021.
Figure 2 graphs wages, the CPI, and real wages since January 2021. The decline in real wages from January 2021 through June 2021 is apparent in the data, as the CPI grew faster than wages. The moderation of CPI growth starting in June, and the continued growth in wages, led to a period of generally positive but small real wage increases over the past ten months.