Surging food and fuel costs propelled inflation to its biggest year-over-year jump since 1991, though moderating gas prices could bring better news next month.
Consumer prices were 5.6percent higher in July than they were a year ago, the Labor Department announced Thursday – an annual difference not seen since the period ending in January 1991.
Prices also increased 0.8 percent over last month's number, itself the second-largest monthly increase in the past 26 years. That's double what economists had predicted.
Consumers are noticing the effects: “Even just going through fast food – McDonald's Happy Meals have gone up,” said Meagan Meyer, 38, a secretary who was out shopping with daughter Micaela, 9, in northern Charlotte on Thursday. “We don't eat out as much. We don't get sodas, we get water. It's just, everything's gone up.”
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Food and gas, the source of most of the price increases, make up about 20 percent of consumer spending, and most major rises in other categories are also linked to the price of gas. Food costs jumped 5.8 percent over a year ago. Transportation increased 13.4 percent, driven by gas prices that were 38 percent higher than last July.
Because consumers buy food and gas on such a regular basis, price increases there are among the most noticeable, said Mike Walden, an economics professor at N.C. State University. Car prices have gone down, for instance, but shoppers don't buy new cars every day, he said.
“Psychologically, people feel that the inflation rate is much higher than it really is,” he said.
Core inflation, which excludes volatile food and energy prices but includes categories such as housing, apparel, recreation, medical care and education, rose 2.5 percent compared with last July. That isn't out of the ordinary compared with years past.
That's not to say Thursday's numbers are good news for the average American. They aren't, economists say, especially given that average weekly wages, adjusted for inflation, were 3.1 percent lower in July than they were a year ago. That translates into less purchasing power.
But the relative stability in the core inflation rate indicates that the nation isn't experiencing the same type of widespread cost increases that hit in the late 1970s. Then, Walden said, there was “pervasive inflation in just about everything.”
“We don't have it this time,” he said. “It is a different inflationary situation.”
The Federal Reserve, balancing the threat of inflation with a desire to keep interest rates low until the economy shows signs of rebounding, is likely to keep interest rates unchanged for the rest of the year, economists said.
Given that gas prices are declining and food prices are also leveling off, Walden and some other economists expect the next monthly inflation report to be much milder. That trend could continue, with the cost surges of the past few months cooling off, he said.
Still, businesses and consumers alike continue to grapple with the consequence of the recent price hikes.
“The cost of our clothes from our manufacturers has gone up substantially,” said Claire Lucas, a saleswoman at Along Came a Spider, a Mooresville children's boutique. In the past six months, some clothes made in Asia have pulled about even price-wise with those made in the U.S., likely because of shipping costs. As a result, the store has had to raise its prices, which affects its sales.
Donna Choice of Charlotte, who was checking out the new SuperTarget across from Northlake Mall on Thursday, said she'd ordinarily head to south Charlotte to shop. Now, she's sticking closer to home.
“It's just gas prices,” she said. “Everything else is about the same to me.”