The U.S. economy had zero inflation in July. How is that possible?

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The U.S. economy experienced zero inflation in the month of July. How is that even possible?

Inflation remains high but has, at least for now, stopped getting worse, according to figures released Wednesday morning by the Bureau of Labor Statistics.

Prices remained unchanged in July but up 8.5 percent in the last year, according to the latest report. Economists had forecast that prices would rise 0.2 percent, making this month’s figures a rare pleasant surprise. Prices in June had risen over 1 percent, bringing inflation to its fastest pace in 40 years.

This comes less than a week after a blockbuster jobs report showing that 528,000 new jobs were created in July, adding up to an economy that certainly doesn’t seem recessionary, but rather quite odd and maybe out of balance.

Senior Editor Leah Askarinam sat down with Grid’s Domestic Economics Reporter Matthew Zeitlin to ask what is going on with inflation numbers in this very odd economy.


Grid: What was the big question you were hoping this report would answer?

Matthew Zeitlin: It’s a mixed bag. While overall prices remained unchanged, there were large fluctuations within the report. Basically, as we knew from other data, gas prices fell, which played a large part in balancing out increases in other areas. For example, food prices rose over 1 percent and are up over 10 percent in the last year, and housing costs rose in July and are up over 5 percent in the last year. But energy prices overall fell over 4 percent, which was enough to balance out increases elsewhere.

G: Before you dove into today’s report, what was the big question you were hoping the data would help answer?

MZ: The big question on everyone’s mind is whether the Fed’s efforts — or just the fluctuations of the economy — would actually start to bring inflation down. We’ve seen data that’s all over the place on whether the economy is still heating up or cooling down: According to GDP, the economy is shrinking, but according to new hiring and wages, it’s still running hot. Today’s report on inflation gives us some insight into what the Fed has accomplished by hiking interest rates and how much more they’ll have to do in the coming months.

G: Taking into account the latest jobs report, has there been a turn in the state of the economy and the expectation of a potential recession?


MZ: Every piece of data tells a different story. It would be odd if we were in a recession with over 500,000 jobs being created in a month and unemployment steady at 3.5 percent. But there’s more to an economy — and especially individuals’ own real or perceived sense of economic well-being — than whether a group of esteemed economists declares the economy has hit its peak. There are still substantial increases in food and housing prices that are weighing on people’s minds and budgets. Those are the kinds of factors that explain why people’s feelings about the economy have been so pessimistic.

G: Gas prices and energy costs have been a big topic when it comes to inflation and the cost of living. What did this month’s figures indicate about them?

MZ: According to real-time data, gas prices have declined substantially since they peaked at over just $5 a gallon in June. In the month of July, according to data from the Energy Information Administration, gas prices fell from $4.77 a gallon to $4.19, and currently sit at $4.04. In the June inflation report, on the other hand, overall energy prices rose 7.5 percent in a month when all prices rose 1.3 percent and made up half of the overall increase in inflation. According to this month’s figures, energy prices overall fell 4.6 percent.

G: What was the Fed’s role in the results of today’s report? And what do you expect its next move to be?

MZ: The big question is in what sense Fed policy is responsible for the inflation numbers we’re seeing. One way of looking at it is that monetary policy, such as where the Fed sets interest rates and its plans to cut or raise them in the future, is responsible for so-called core inflation, which includes prices of everything besides food and energy and is heavily affected by the global price of commodities like oil and grain. In a reversal of a typical recent month, the “core” inflation figure was actually greater than the headline one: It rose 0.3 percent and is up 5.9 percent on the year.

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.

  • Leah Askarinam
    Leah Askarinam

    Politics Editor