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July's Inflation Data May Be Lower Than June's, But Prices Continue To Rise

DEBBIE ELLIOTT, HOST:

The price of gasoline and groceries keeps going up, and that's cutting into workers' buying power, despite rising wages. The Labor Department reports this morning that consumer prices rose 5.4% in the 12 months ending in July. That matches the annual inflation rate in June, which was the highest in nearly 13 years.

NPR's Scott Horsley has been keeping an eye on inflation and joins us now. Good morning, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Debbie.

ELLIOTT: So what's driving the run-up in prices?

HORSLEY: We're still seeing a mismatch between consumer demand, which has bounced back strongly from the pandemic lows, and supply, which has been slower to find its footing. That's a recipe for rising prices. We see it in particular in things like hotel rooms, where travel's picked up faster than hotels have been able to staff up. Now, the price increase between June and July was smaller than that between May and June, so it does begin to look like inflation has peaked. Used car prices, for example, which were a big driver of inflation in the spring have begun to level off, and we expect those prices to start falling in the months to come. But we're still seeing rising prices for food, rent, gas and new cars. And a lot of that has been driven by pandemic-related supply bottlenecks.

ELLIOTT: So are those bottlenecks improving at all, or are we still seeing things get, you know, stuck in the supply chain, so to speak?

HORSLEY: Yeah, they're still getting stuck. When you look at surveys of purchasing managers, they're still reporting long lead times and a lot of challenges getting the necessary parts and supplies. It does not look as if the bottlenecks are getting worse, but untangling the supply snarls could take a while.

ELLIOTT: You talked about the challenges that hotels and other businesses are having right now in just being able to hire people. But they're trying to, and they're starting to ramp up hiring. Is that going to help keep prices in check?

HORSLEY: Yeah, it should help. There is still a record number of job openings in this country, but employers did add well over 900,000 jobs last month. That includes about a quarter million jobs in bars and restaurants, which should ease some of their staffing shortages. In many cases, those employers have had to fork out more money in order to find workers. And Cecilia Rouse, who's one of the - President Biden's top economic advisers, says that's a good thing.

CECILIA ROUSE: That is how our economy works. If one side of the market's having trouble getting what they want or hiring who they want, they pay a better wage. We do see evidence that employers are increasing their wages and other forms of compensation, I might add, in order to encourage workers to come back to work.

HORSLEY: Average restaurant wages were more than 9% higher in July than they were a year ago. That's more than double the wage increase we saw in the rest of the private sector.

ELLIOTT: So if these businesses are paying more, are they going to pass that on to consumers?

HORSLEY: Well, in some cases, those costs are being passed along. Restaurant prices jumped eight-tenths of a percent between June and July. That's the biggest increase in more than four decades. Restaurants do feel like they have some pricing power right now because, you know, a lot of us are just tired of eating at home (laughter).

ELLIOTT: (Laughter).

HORSLEY: Back in the 1970s, we did see this sort of unfortunate feedback loop where wages and prices just kept ratcheting up, and that produced runaway inflation. But Federal Reserve Chairman Jerome Powell does not think that's going to happen this time, although he and his colleagues are on the watch for it.

JEROME POWELL: There is a form of wage inflation that can lead to price inflation, and we're not seeing that right now. The problem is if it happens in a way that pushes firms broadly into raising prices, what's called the wage-price spiral. We don't see that now.

HORSLEY: One thing to keep an eye on is whether these higher wages help to lure more people back into the job market this fall. That's what Powell and a lot of employers are counting on. And having more workers available would help to ease the pressure on both prices and paychecks.

ELLIOTT: That's NPR's Scott Horsley. Thanks, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.