Annual Inflation Rose 3.2% in July

What happened

Annual inflation rose 3.2% in July, according to the Consumer Price Index (CPI), which measures changes in the cost of consumer goods and services. It also rose 0.2% on a monthly basis. An uptick in shelter costs was the biggest driver of July's CPI increase.

So what

Inflation has been cooling steadily since peaking in mid-2022. But July's CPI reading shows an uptick in annual inflation for the first time in 13 months.

Shelter costs rose 7.7% on a year-over-year basis in July, while grocery prices rose 3.6%. Transportation services were also up 9% annually.

That said, July's CPI is a vast improvement from June of 2022, when annual inflation was up 9.1%. "Don't be fooled by the uptick in [year-over-year] inflation," said Julia Pollak, chief economist with employment site ZipRecruiter. "Inflation is slowing and doing so across a broader range of goods and services."

Now what

Since early 2022, the Federal Reserve has raised interest rates 11 times in an effort to slow the pace of inflation. The central bank's goal is to bring inflation back down to the 2% mark. It's this level, the Fed feels, that best lends to long-term economic stability.

July's increase in annual inflation, however, might read like a setback in the eyes of the Fed. And that has the potential to lead to further interest rate hikes.

That's not great news for consumers. The Fed's rate hikes have driven the cost of borrowing up across the board, making it more expensive to do everything from finance a vehicle to sign a personal loan. Further rate hikes this year might truly put a strain on consumers who need to borrow and are already cash-strapped.

The one silver lining, though, is that July's increase in annual inflation was small. And while certain costs are up on an annual basis, others, like energy and medical care services, have decreased.

Furthermore, if the Fed reacts to July's CPI with additional rate hikes, it could lead to higher interest rates for consumers with money in a savings account. CD rates could rise, too, affording those with cash in the bank a chance to earn more on their money.