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Five charts explaining why inflation is so high

Months of high inflation have had policymakers, economists and U.S. households grappling with greater price hikes for gas, groceries, cars, rent and other essentials.

The latest inflation data, released by the Bureau of Labor Statistics, showed that prices in July climbed 8.5 percent compared with the year before. This is a breakdown of how we got here.

Persistent supply chain backlogs and high consumer demand for goods have kept prices elevated. More recently, Russia’s invasion of Ukraine strained global energy markets and sent the national average for a gallon of gas above $5 earlier this summer. But gas and fuel prices ticked down, leading to a drop in overall inflation.

While inflation over the past year is up 8.5 percent, overall prices stayed flat over the last month, driven largely by the fall in gas prices.

The July inflation data ticked down after a June run-up in gas prices. In some parts of the country, particularly on the West Coast, it was not uncommon to find gasoline well above $5 or even $6 a gallon earlier this summer. But prices marched downward, giving much-needed relief to Americans nationwide.

While the gas prices fell last month, the cost of shelter and food prices continue to go up. Families across the nation are also facing higher prices at the grocery store as a shortage of fertilizer from Ukraine, poor harvests and livestock illnesses all put pressure on supply. People are stretching their wallets for dairy, fruits and vegetables, baked goods and meats.

Throughout the pandemic, new and used cars have been a kind of litmus test for the country’s supply chain issues and related price hikes. Used cars and trucks were a driving force behind the surge in inflation last year.

The market relies heavily on trade-ins and auto parts, which have been in low supply during a global microchip shortage. That pinch has made it more expensive for dealers to get any of their models, much less repair them. All of those problems are also hurting the supply of used cars, which depend on trade-ins as well as rental car company inventories.

There are some encouraging signs. Inflation was flat in July after months of steady rises. The rise in used car prices — which made up a bulk of inflation for much of the past year — has slowed in recent months and are expected to drop as semiconductor shortages improve. The red-hot housing market is also cooling, as a run-up in mortgage rates discourages aspiring buyers from competing for the few homes available.

The Federal Reserve has launched major interest rate increases to get inflation under control, penciling in seven hikes by the end of the year. In July, the Fed completed its fourth hike and raised rates by three quarters of a percentage point. Higher rates will slow the economy by making it more expensive to borrow money, which will discourage businesses from expanding and raise the cost of consumer loans such as mortgages.

The challenge is a delicate one: If the Federal Reserve moves too forcefully to slow the economy, it could cause a recession and spell unwanted consequences for the job market and rest of the recovery.

“Price stability is really the bedrock of the economy,” Fed Chair Jerome H. Powell said at a news conference last week. “And nothing works in the economy without price stability.”

Data is from the Labor Department. Laura Reiley contributed to this report.

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