What Can We Learn from the July CPI?

The U.S. consumer price index (CPI) climbed 8.5% from a year earlier in July 2022, down from the 9.1% pace set in June. This headline figure masks moves of individual drivers of price growth that went in the other direction.

Understanding the index’s construction is important. The CPI is calculated as a weighted measure of a basket of goods that represent a prototypical household’s spending each month. Understanding where households are facing more pressure in their budgets can help one think about economic trends for the year ahead.

The chart below highlights the different components of the CPI. Items above the line drove more growth in overall prices, and bubble size represents the overall growth for the month due to each component.

Breaking down the CPI by component

Energy continued to drive much of the CPI growth in July, representing 33.7% of the growth despite being only 9% of the index. Still, the pace clearly slowed. Relative to June, energy prices fell at a 54% annualized rate. This declining pressure from energy costs should help households.

Shelter moved in the other direction, however. Housing costs were up 5.7% from a year earlier and represented 20.7% of all the growth in the CPI for the month. Also contrary to energy, growth in housing costs accelerated, having risen at a 7.2% annualized pace from June to July. Given that shelter represents the biggest component of the CPI, a 32.1% share of the index, moves here bear watching.