July’s inflation report has raised fears of runaway prices and an overheating economy. But Labor Department data shows most of the jump can be blamed on just three areas — housing, used cars, and gas.
Both used cars and motor fuel were 42 percent more expensive in July 2021 than they were at the same point last year. Housing costs were up just 3 percent, but had an outsize effect on top-line figures: Because shelter is so essential, it’s weighted more heavily by the government’s economists when calculating overall inflation.
Broadly, the Labor Department estimates costs have risen 5 percent over the past year.
On Capitol Hill, the sudden surge of inflation is reigniting old fears. “Concerns of inflation have been dismissed,” Sen. Chuck Grassley said earlier this year as worries about price increases started emerging. “This sounds too familiar to those of us who witnessed the stagflation of the 1970s.”
But this housing-and-transportation-driven price spike doesn't match what the U.S. saw in the 1970s, where prices rose an average of 7 percent every year for more than a decade. That bout of inflation was driven by energy, with sudden plunges in oil imports raising fuel prices and inflation expectations.
Price hikes were also more broadly spread across the economy — in 1970, inflation for food, housing, transportation and medical care were all above 5 percent. Of these categories, only transportation is above 5 percent today.
This time around, experts say the current spate of inflation is driven by a combination of pent-up demand and supply chain bottlenecks, both exacerbated by the pandemic.
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