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Data released on Wednesday showed the Consumer Price Index rose 0.6% in July.  According to analysts at Wells Fargo, the rise was underpinned by the largest gain in the core index in more than 50 years. They point out the jump reflects the unwinding of the pandemic-induced price cuts this spring.

Key Quotes: 

“Consumer prices jumped 0.6%, with an equally large and significantly rarer gain in the core index. Yet July’s increase does not mark the start of sustained pickup in inflation. Instead it is merely catching up from declines this spring.”

“Core inflation is typically the focus of policymakers since it strips out the highly volatile energy and food components.”

“Support from one key component of the CPI—housing—is also beginning to weaken.”

“Despite the sharp rise in July, weak demand will keep a lid on inflation in the coming months.”

“Low inflation expectations will also make the Fed’s job of 2% inflation harder in this environment. While expectations have perked up a bit recently, they remain depressed by historical standards and are unlikely to have much staying power as the soft inflation environment persists. We expect core CPI, which runs a few tenths hotter than the core PCE deflator, to remain below 2% though 2021.”