Rising Prices: Which Goods and Services Are Driving Inflation?

The July Consumer Price Index (CPI) showed that inflation moderated once again last month, but rising costs for key goods and services continue to pressure peoples' wallets.

Headline July CPI increased 0.2% month-over-month, according to the Bureau of Labor Statistics, which was in line with economists' forecast. On an annual basis, CPI came in below 3.0% for the first time since 2021. The headline print rose 2.9% last month vs expectations for a 3.0% increase, or the same annual rate of inflation seen in June. 

Core CPI, which excludes food and energy costs and is considered a better indicator of future prices, increased 3.2% in July, which was in line with estimates. On a monthly basis, core CPI rose 0.2%

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"On the one hand, inflationary pressures are well contained near 3%, but on the other, shelter costs accelerated fiercely due to lighter mortgage rates and an underbuilt housing market," wrote José Torres, senior economist at Interactive Brokers. "Reduced borrowing costs for prospective homeowners and landlords alike are serving to lower debt service expenses but are supporting property valuations."

The bottom line from the July CPI report is that prices are still rising at a rate not seen in generations. 

Between 2000 and 2020, annual inflation in the U.S. averaged just 2.1%. (Recall that the Federal Reserve's inflation target is 2%.) Perhaps we didn't appreciate it enough at the time, but the first two decades of the 21st century were a sort of Goldilocks era for inflation: not too fast and not too slow. 

Just have a look at some of the subcategories in the latest CPI report to see how much things have changed. Below we highlight the goods and services that are weighing most heavily on folks' finances.

Rising prices: where inflation is hitting hardest

On a monthly basis, spending categories tracked by the BLS showed mixed results. However, some select categories proved sticky, especially shelter. Rising costs for keeping a roof over one's head drove 90% of the advance in headline inflation last month, the BLS said. 

Indeed, the shelter component of CPI increased 0.4% month-to-month, accelerating from 0.2% in June.

"It was a little discouraging to see shelter tick back up after July's easing, but the trend toward lower inflation is intact," wrote David Russell, global head of market strategy at TradeStation. 

Over the past 12 months, shelter costs have increased 5.1%, according to government figures. However, David Royal, chief financial and investment officer at Thrivent, notes that shelter costs are "difficult to track and can have a lag in measurement."

Other goods and services driving inflation last month included food at home, which rose 0.1% in July, or the same rate as seen the prior month; and food away from home, which increased 0.2% for a second consecutive month.

Rising prices for fuel oil also stuck out, increasing 0.9% in July after falling 2.4% the previous month. Transportation services likewise staged a month-to-month upside reversal. After declining 0.5% in June, the transportation index jumped 0.4% in July.

On an annual basis, costs for transportation services were up 8.8% in July to lead all categories. Food away from home, electricity and medical care commodities were other substantial contributors to the year-over-year rise in inflation. 

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