The CPI-U rose 0.3 percent in July on a seasonally adjusted basis. Over the past year, the index increased by 1.2 percent.
Food prices decreased, despite sharp rises in the price of key agricultural commodities like wheat and corn over the past month. Fuel was a significant driver of inflation - gasoline prices rose 4.6 percent in July on a seasonally adjusted basis.
Economists often cite inflation "minus food and fuel," because the prices of those two classes of items are volatile. However, that tends to obscure the real effect of inflation on the average consumer. Along with shelter, food and fuel tend to make up the bulk of many household budgets. Rising food prices does indeed constitute inflation for the average American.
A lot of economists still fear deflation, particularly in the housing sector. It's true that there's a glut of housing capacity, and the painful process of de-leveraging still has a long way to go. Indeed many analysts are now predicting a double-dip recession in the real estate markets, which may spread to other sectors of the economy.
"Housing is entering a double dip in prices," Paul Dales, chief economist at the Capital Economics research group, told CNBC. "They are headed down even more over the next 18 months by as much as 5 percent. Anyone looking for a short term gain by selling a property is heading for trouble."
Oil prices remain volatile, however, and supply shocks could lead to inflation in those sectors most sensitive to energy prices: fuel and food. It does the average American consumer little good if they experience inflation in the staple needs of daily life while deflation occurs in durable goods and the value of their homes.
With the Federal Reserve maintaining its balance sheet at around $2 trillion, the threat of deflation is far from gone. Investors should consider adding physical dealer gold to their portfolios in order to hedge against potentially catastrophic inflation in the price of the products most essential for daily life.
