CPI Jump May Hike Interest Rates

KNOXVILLE, Tenn. — A July jump in the Consumer Price Index will make it harder for the Federal Reserve Bank to resist raising interest rates at the end of the month, a University of Tennessee economist said.

The cost of goods and services rose by 0.3 percent, the U.S. Bureau of Labor Statistics announced Tuesday.

“That’s not a sharp acceleration in the rate of growth of inflation, but it’s still a rather significant pace of growth,” said Dr. Matt Murray, who heads the University of Tennessee economics department.

Murray said that the Federal Reserve Bank and other policymakers use the Consumer Price Index as a barometer of the future path of growth in consumer prices.

“It looks very modest on a one-month basis, but if it accumulates at that pace over the year, it does indicate more than a one-percentage point increase in the rate of inflation compared to last year,” Murray said.

Coupled with other economic factors, Murray said the Fed is being pushed toward increasing the cost of borrowing money as a way to control inflation.

“I think that the Fed is setting us up for a rate increase,” he said. “We’ve had very tight labor markets, rapid job growth and low unemployment claims as of late.

“That’s just adding more pressure to the Fed to raise interest rates.”

Higher gasoline prices and air fares were partly responsible for the jump in the index, but Murray said the effect of more expensive airline tickets was insignificant compared to the higher costs at the gas pump.