U.S. consumer prices jumped in July, but weak demand and the lapse in enhanced unemployment benefits will keep inflation under control, economists said.
The consumer price index (CPI) increased 0.6 percent in July, matching the jump in June, with gasoline accounting for a quarter of the gain, the Labor Department reported Wednesday.
Excluding the volatile food and energy categories, the so-called core CPI rose 0.6 percent in July, the largest increase since January 1991, according to the department.
"July's increase does not mark the start of sustained pickup in inflation. Instead it is merely catching up from declines this spring," Sarah House, senior economist at Wells Fargo Securities, wrote Wednesday in a note, adding weak demand will keep a lid on inflation in the coming months.
"Even as employment has recovered ground since the spring's widespread shutdowns, the labor market remains in tatters. Many households are unable or unwilling to spend amid the more tenuous jobs situation, questions over the amount and duration of unemployment benefits and continuing risk of COVID," House noted.
"Overall inflation remains tepid and is likely to decelerate in the months to come, but for the wrong reason: a slowdown in the recovery," echoed Diane Swonk, chief economist at Grant Thornton, a major accounting firm.
"The challenge going forward is the blow to demand triggered by the lapse in unemployment benefits. Five independent studies now show that the supplemental $600 was not the deterrent to working that many feared, but did provide a lot of support for consumer spending," Swonk wrote Wednesday in an analysis.
"Now that it is gone, consumer spending and the reacceleration we were seeing in prices could evaporate. A second wave of infections in the fall is another threat given the return of students to college campuses and the outsized role they played in spreading the virus during the summer," she argued.
The extra 600-U.S.-dollar weekly unemployment benefit for the unemployed, which benefited nearly 30 million Americans, expired at the end of July, as Republican and Democratic lawmakers failed to reach a deal over the next COVID-19 relief bill.
Economists have warned that the U.S. economy is at serious risk of sliding back into recession if the White House and Congress could not reach a deal on another fiscal rescue package in the coming months.
