Key facts
- US annual inflation eased to 3.4% in July from 3.5% in June.
- Housing costs were the primary driver of the monthly inflation increase.
- Food prices saw a slower rate of increase in July compared to June.
- Energy prices decreased in July.
- Core inflation (excluding food and energy) rose 0.2% in July.
US inflation showed a slight easing in the year to July, with prices rising 3.4% compared to 3.5% in the previous month, according to the Bureau of Labor Statistics. The monthly inflation rate was 0.1%, primarily influenced by an increase in housing costs, which constitute a significant portion of household spending. Consumers found some relief as food prices increased at a slower pace than in June, and energy prices declined. Core inflation, excluding volatile food and energy components, rose by 0.2% after remaining flat in June, with notable price increases in medical care and airline tickets, while car insurance costs decreased.
Historically, grocery prices have experienced rapid increases followed by slow declines, a phenomenon termed 'rockets and feathers.' While food price inflation peaked in 2022, prices have not significantly reversed. The US Department of Agriculture projects food at home prices to rise 2.7% this year, a rate close to the historical average. Consumers are increasingly seeking deals and shopping at discount stores, with a noticeable decline in the number of items purchased at grocery stores. Factors such as high gas prices, increased use of GLP-1 medications, and reduced government food aid are impacting grocery spending.
Looking ahead to 2026, food inflation is expected to normalize to around 3% annually. However, a divergence is anticipated between food at home and food away from home. Food at home prices are predicted to rise by 1.7%, while food away from home costs are expected to increase by 4.6%. Specific categories are expected to see significant price shifts, with egg prices projected to fall by 22.2% and beef prices by 9.4%. Cereal and bakery prices are forecast to increase slightly, while fresh vegetable prices are expected to rise about 2%.