The impact of falling food prices and rising medical prices on consumer buying decisions struck harder in July. Price trends continue to give households incentives to economize on consumables to pay for other spending.
Rising prices for medical care and prescription drugs are a key factor shifting a greater share of spending toward service-related categories, but also drawing spending away from consumables are discretionary goods—mostly related to the home and leisure.
Meanwhile, spending on consumables is being dampened by prices for food at home that fell -0.2% from the prior month and are down -0.7% year-to-date. This pace of falling prices for food at home exceeds the -0.5% rate forecast by MacroSavvy™ at the beginning of the year (see here).
The food price impact reinforces the weak spending in food and grocery projected by the Spending Confidence Index™ (see the July article here) and evident in the latest retail sales trends (summarized here).
While these extremes in inflation pressure create challenges for households, they are not evident in the topline inflation numbers—which remain modest overall:
- Inflation excluding food and fuel—the so-called core inflation rate—stayed steady at a 2.2% rate in July, which matches the year-to-date rate. Overall inflation including food and fuel remains much lower, near 1%. That’s because energy prices remain down from a year ago.
- In apparel, prices are flat across the board as measured month-to-month, year-to-year, and year-to-date.
- Price pressures otherwise remain focused in services, led by rent and medical care—although education prices recorded a rare month-to-month decline.
- Energy prices have retreated from recent month-to-month increases and remain down by about 10% from a year ago.
- Restaurants—or food away from home—is were some food inflation persists, in contrast to food at home. That inflation is a result of higher labor costs amid strong demand for food service workers.
See the table summary for more detail.
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