Inflation Trends and the RCF Inflation Scorecard – July 2023

Year-over-Year Inflation Rises but Monthly Data Confirm Downward Trend    

Peter Bernstein, Chief Economist,, 312-431-1540 x1515

The Current Situation

The CPI increased 0.2% in July 2023, raising the year-over-year inflation rate to 3.2% from last month’s 3.0%.  The increase in inflation, however, was a product of July 2023’s small price increase replacing July 2022’s small price decrease in the calculation of the year-over-year inflation rate.   Focusing on monthly data confirms the downward trend in price pressures.  Both the monthly and 3-month inflation rates in July were 2.0% annualized, in line with the Fed’s target. 

Core prices also rose 0.2% in July, reducing its year over-year inflation rate to 4.7%, down from last month’s 4.9% rate.   But, again, shorter-term measures are more favorable with the annualized one-month core inflation rate equal to 2.0% and the three-month core rate equal to 3.0%.  Thus, while it will take some time to bring the year-over-year core rate down to 2.0% we are beginning to see light at the end of the tunnel. 

As always, shelter costs have been the big driver of inflation.  Rents and owner-equivalent rents were up 8.0% and 7.7%, respectively, versus last July.  Moreover, these two main contributors to inflation have shown only a gradual improvement over the past year.  Since shelter costs are both a function of specific housing market dynamics and the way the CPI measures rent changes, we look closely at inflation excluding housing. This CPI measure was flat in July and up just 1.2% year-over-year. 

RCF’s Inflation Scorecard

RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index.  Each of these price series represents a portion of the CPI based on household spending patterns.  For example, food purchased for at-home consumption is about 8.7% of the typical consumer’s budget; it has a weight of 8.73 out of a total index of 100. 

Our scorecard presents two metrics to track month-to-month price increases.  The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation).  Because deflation is showing up across more categories, we’ve added a separate measure of the total weight of deflation within the CPI index. 

Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%, a monthly rate that corresponds to the Federal Reserve’s target inflation rate of 2% per year.   

In July, 22% of the weighted CPI showed deflation, 26% showed slowing inflation, and 44% showed rising inflation.  One concern is that the July weight of rising inflation was the highest since December 2022, though much of that was due to a slight increase in July inflation rate for the heavily weighted owner’s equivalent rent (one-fourth of the overall CPI index). 

More positive news is found in our second metric which showed that only 46% of the weighted CPI had inflation above 0.2% per month.  July was the first month since the onset of higher inflation in 2021 for which a majority of the CPI index had a monthly inflation rate at or below the Fed’s assumed target of 0.2% per month.  Just six months ago, 82% of the weighted CPI index had monthly inflation above 0.2%, illustrating how much the situation has improved since the start of the year. 

RCF Inflation Scorecard: July 2023

Analysis of Individual Components of the Consumer Price Index 

Sources: Bureau of Labor Statistics and RCF Calculations, 1. Inflation direction indicates whether monthly inflation in July was higher or lower than monthly inflation in June.  Deflation means prices fell in July compared to June.


  • While overall inflation was 3.2% year-over-year in July, there was a wide range of annual price changes across different CPI components.  Motor fuel prices are down 20.2% vs. last year and public transportation (including airfares) prices were down 13.2%.  Over the same period, motor vehicle insurance prices were up 17.8% while vehicle maintenance and repair prices were up 12.7%
  • A minor setback for consumers at the grocery store.  Food-at-home prices rose 0.3% in July, after having been flat or falling during the previous four months.  The price of food-away-from-home rose just 0.2% in July but is up a solid 7.1% vs. a year ago.
  • Used car and truck prices fell 1.3% in July and are down 5.6% vs. a year ago.  New vehicle prices fell 0.1% in July and are up 3.5% year-over-year.  But both these improving figures mask the unfortunate reality (for buyers at least) that used vehicle prices are up 40% vs. 2019 while new vehicle prices are up 20%. 
  • The situation with vehicle prices underscores an important point.  Even if inflation were to quickly drop to a 2% annual rate, the price level would remain considerably higher than it was pre-pandemic.  Of course, incomes are higher as well so the impact on real living standards is more of a mixed bag.    
  • With regards to living standards, there is good news so far in 2023 as higher incomes combined with lower inflation have contributed to a 2.6% increase in per capita real after-tax income since the end of 2022.  Interestingly, this measure is only up 1.8% since before the pandemic indicating that it is only since the start of this year that households are seeing consistent improvements in their standard of living.