Consumer prices most likely climbed at a rapid clip in July, another month of unusually quick gains that could keep Federal Reserve officials uncomfortable and pose a political liability for the Biden White House.
The Bureau of Labor Statistics is set to release the Consumer Price Index at 8:30 a.m. on Wednesday. The inflation measure probably increased by 5.3 percent last month compared with a year earlier, and 0.5 percent from June, according to economists surveyed by Bloomberg.
It would represent a moderation in the pace of increase — the C.P.I. rose 5.4 percent in June from a year earlier, and 0.9 percent in June from May — but still a rapid yearly and monthly gain compared to what is typical.
Economists widely expected that price gains would pick up this year after slumping in 2020, but the extent of the jump has come as a surprise. Yearly price gains will almost surely moderate in the months ahead as a data quirk that’s been helping exaggerate them fades (more on that later).
Monthly gains are also expected to continue cooling off as businesses find ways to cope with short-term disruptions to supply chains, which have pushed used car prices sharply higher and led to a big part of the 2021 pop.
But the key question for the Fed, and the White House, is just how quickly that will happen. For the Fed, which is charged with keeping price gains low and steady over time, temporary price jumps are tolerable. But if consumer and business patterns change, price gains could stay persistently high, and that would be a problem. For the White House, climbing costs have become a political headache as Republicans use them to claim the Biden administration is mismanaging the economy.
Here’s what to know as you dig into Wednesday’s report.
The C.P.I. is not the Fed’s target measure. The central bank aims for 2 percent inflation on average over time, and it defines that goal using the Personal Consumption Expenditures index, which has also been up this year but not quite as sharply as the measure to be released on Wednesday. The C.P.I. is more timely and its data feeds into the Fed’s metric, though, which makes it very closely watched.
The increase is not all about that base. The so-called base effect played a big role in the gains earlier this year. Prices for airline tickets and restaurant meals dropped last year when the economy locked down, so when today’s prices are measured against those figures, the increase looks outsized.
But the base effect is now fading, because prices turned a corner after May 2020 as the economy reopened. This can vary a bit depending on how its calculated, but roughly 0.7 percentage point of the expected 5.3 percent gain in prices for July is likely attributed to the base effect. About 1 percentage point of the prior months’ gain, and 1.4 percent of May’s gain, can be attributed to the base effect.
The increase is about the pandemic. One thing the White House tends to point out is that much of the increase in prices has come from a few categories that are suffering from some unusual reopening-related quirks. For instance, used car prices have shot up as a chip shortage has delayed production of new cars. Analysts at TD Securities expect that trend to calm down starting with this month’s report.
The jump has not been all that broad. While a few categories of goods and services are going wild, it is not the case that absolutely everything is becoming more expensive. The Federal Reserve Bank of Dallas publishes what is called a “trimmed mean” inflation measure that tosses out categories with the biggest increases or decreases each month. After eliminating outliers, that gauge shows that inflation is still running at about 2 percent.
People are watching to see whether measures of important, and persistent, inflation categories start to move up more concertedly. For instance, if housing-related costs take off as a home price crunch bleeds into rents, that could keep inflation higher.
Fast inflation will become a real problem if it lasts. “The question is more — what the inflation outlook is going to be into the next year, 2022, 2023,” Charles Evans, president of the Federal Reserve Bank of Chicago, said on a call with reporters on Tuesday.
Fed officials are watching wage increases and inflation expectations for a signal of whether the current burst of reopening-driven inflation will linger. If pay takes off on a sustained basis, employers may find that they need to charge more to cover their expenses. Likewise, if consumers and businesses start to expect rapid price increases, they may be more willing to accept higher prices, setting off a self-fulfilling prophesy.
For now, officials don’t expect that to happen.
“My best estimate is that this is something that will pass,” Jerome H. Powell, the Fed chair, said in a recent news conference. “It’s really a shock to the economy that will pass through.”
Ben Casselman contributed reporting.
YouTube on Tuesday removed a video by Senator Rand Paul of Kentucky for the second time and suspended him from publishing for a week after he posted a video that disputed the effectiveness of wearing masks to limit the spread of the coronavirus.
A YouTube spokesperson said the Republican senator’s claims in the three-minute video had violated the company’s policy on Covid-19 medical misinformation. The company policy bans videos that spread a wide variety of misinformation, including “claims that masks do not play a role in preventing the contraction or transmission of Covid-19.”
“We apply our policies consistently across the platform, regardless of speaker or political views, and we make exceptions for videos that have additional context such as countervailing views from local health authorities,” the spokesperson said in a statement.
In the video, Mr. Paul says: “Most of the masks you get over the counter don’t work. They don’t prevent infection.” Later in the video, he adds, “Trying to shape human behavior isn’t the same as following the actual science, which tells us that cloth masks don’t work.”
In fact, masks do work, according to the near-unanimous recommendations of public health experts.
On Tuesday, Twitter suspended Representative Marjorie Taylor Greene, Republican of Georgia, for seven days after she posted that the Food and Drug Administration should not give the coronavirus vaccines full approval and that the vaccines were “failing.”
On Twitter, Mr. Paul called his suspension “a badge of honor” and blamed “left-wing cretins at YouTube,” while linking to an alternative site to watch the video.
In a statement, the senator said that private companies had the right to bar him, but that YouTube’s decision was “a continuation of their commitment to act in lock step with the government.”
“I think this kind of censorship is very dangerous, incredibly anti-free speech and truly anti-progress of science, which involves skepticism and argumentation to arrive at the truth,” he said.
Last week, YouTube removed from his channel an eight-minute Newsmax interview in which the senator said that “there’s no value” in wearing masks. According to YouTube policy, the company issues a warning for a first offense, then the weeklong suspension is part of its “first strike” response to a second offense.
The strike will be removed from his account after 90 days if there are no more violations. A second-strike in the 90 days would result in a two-week suspension, and the account would be permanently banned after a third strike.
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Instagram is rolling out new features on Wednesday to make racist material harder to view.
Among them, one will let users hide potentially harassing comments and messages from accounts that either don’t follow or recently followed them, Ryan Mac and Tariq Panja report for The Times.
The actions follow a more than two-year campaign by English soccer to pressure Facebook and other social media companies to rein in online hate speech against their players.
Soccer officials have since met numerous times with the platforms, sent an open letter calling for change and organized social media boycotts. Facebook’s employees have joined in, demanding that it to do more to stop the harassment.
“The unfortunate reality is that tackling racism on social media, much like tackling racism in society, is complex,” Karina Newton, Instagram’s global head of public policy, said in a statement. “We’ve made important strides, many of which have been driven by our discussions with groups being targeted with abuse, like the U.K. football community.”
But Facebook executives also privately acknowledge that racist speech against English soccer players is likely to continue. “No one thing will fix this challenge overnight,” Steve Hatch, Facebook’s director for Britain and Ireland, wrote last month in an internal note that The Times reviewed.