Inflation slows in latest data, but some economists don't think the danger has passed

published 11 August 2021

Inflation slowed in July, giving economists (and the stock market) more confidence that this year's rise has been transitory, sparked largely by booming car prices. But others still don't think the danger has passed.

For instance, Capitol Economics' takeaway is that the July data "suggest that the initial burst of stronger inflation is now fading, but it is still much too soon to dismiss the risks of a more prolonged period of higher inflation over the coming years."

Harvard University's Jason Furman, who served as an adviser to former President Barack Obama, said that while vehicle prices moderated as expected, "price increases have been widespread" and are not just the result of "just a few freakish categories," adding that "some shoes have yet to drop," namely shelter. Right now, rent prices are low, but likely to rise more swiftly soon, which could have a significant affect on the situation.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

If core inflation continued at the July rate for 12 months, Furman notes, annual inflation would hover around 4 percent, a figure he doesn't believe the Federal Reserve will tolerate. However, his "best guess" is that the rate will continue to moderate and settle in around 3 percent. That's still higher than the Fed's preferred level, though Furman told The Associated Press earlier this year that 3 percent won't necessarily be "terrible" if the right monetary policy is in play and wages can keep pace.

Explore More

Tim is a staff writer at The Week and has contributed to Bedford and Bowery and The New York Transatlantic. He is a graduate of Occidental College and NYU's journalism school. Tim enjoys writing about baseball, Europe, and extinct megafauna. He lives in New York City.

Subscribe to The Week

Sign up for The Week's Free Newsletters

Sign up for Today's Best Articles in your inbox