US inflation slows from 40-year high and remains elevated


Silver is being exchanged recently at a food stand at the Grand Central Market in Los Angeles. (AP Photo/Marcio Jose Sanchez)

WASHINGTON (AP) — Falling prices for gasoline, airline tickets and clothing helped Americans ease the pain of high inflation slightly last month, though overall price increases have not slowed only slightly from June’s four-decade high.

Consumer prices jumped 8.5% in July from a year earlier, the government said on Wednesday, compared with a 9.1% year-on-year increase in June. Month-over-month prices remained unchanged from June to July, the smallest such increase in more than two years.

Much of last month’s relief was felt by travellers: hotel room prices fell 2.7% from June to July, air fares nearly 8% and car rental prices from 9.5%. These price declines followed strong increases over the past year after COVID-19 cases eased and travel rebounded. Airfares are still almost 30% higher than a year ago.

Lower travel-related prices last month helped lower core inflation, a measure that excludes the volatile categories of food and energy to provide a clearer picture of underlying inflation. Core prices rose just 0.3% from June, the smallest month-over-month increase since March. And compared to a year ago, core inflation stood at 5.9% in July, the same year-on-year increase as in June.

All told, the July figures raised hopes that inflation may have peaked after more than a year of relentless increases that have strained household finances, soured Americans on the economy , led the Federal Reserve to aggressively raise borrowing rates and lowered President Joe Biden’s approval ratings. .

Yet core prices have slowed in the recent past only to reaccelerate in the following months. And even if inflation continues to weaken, we are far from the Fed’s annual target of 2%.

“There are good reasons to believe that inflation will continue to slow,” said Michael Pugliese, economist at Wells Fargo. “What I think gets lost in this discussion is how long?”

Even if consumer inflation were to slow to 4% — less than half its current level — Pugliese suggested that would likely force the Fed to keep raising rates.

Americans are still absorbing larger price increases than they have in decades. Grocery prices jumped 1.1% in July and are 13% higher than a year ago, the largest year-over-year increase since 1979. Bread prices have jumped 2.8% last month, the highest in more than two years. Rental and medical costs increased, although slightly less than in previous months.

Average paychecks are growing faster than they have in decades, but not fast enough to keep up with these rising costs. Consequently, some people who had retired have felt the need in recent months to return to the labor market.

Among them is Charla Bulich, who lives in San Leandro, California. For the past six months, Bulich, 73, has worked a few hours a week to care for an elderly woman because her social security and food stamps don’t cover her rising costs.

“I go over budget all the time – that’s why I had to look for a job,” Bulich said. “I wouldn’t even think of buying hamburger meat or a steak or anything like that.”

Now she fears losing her food stamps in the coming months because of her extra income.

Micheal Altfest, director of community engagement at the Alameda County Community Food Bank in Oakland, said his organization now provides about 4.5 million pounds of food per month, up from less than 4 million in January. The group also budgeted for a 66% increase in fuel costs. This is mainly because of higher gas prices, but also because he is now using more trucks to meet the demand for food.

Altfest’s rent recently jumped 14%, he said, forcing him to recalibrate his budget.

“All of these costs go up, all of a sudden,” he said. “People here were already exhausted.”

Wednesday’s report bolstered hopes that the modest slowdown in inflation could allow the Fed to slow the pace of its short-term rate hikes at its meeting in late September — and sent stock prices soaring. The speed and magnitude with which the Fed raises borrowing costs has significant effects on the economy: steeper increases tend to reduce consumer and business borrowing and spending and make a recession more likely. .

If the Fed doesn’t have to hike rates that high to rein in prices, it’s more likely to engineer an elusive “soft landing,” in which growth slows enough to rein in high inflation, but not to the point of triggering a recession.

Biden picked up on the report in remarks he made on Wednesday, pointing to the flat monthly inflation figure:

“I just want to say a number: zero,” he told reporters. “Today we learned that our economy recorded zero percent inflation in the month of July.”

Biden pointed to lower gasoline prices as a sign that his policies — including large oil releases from the National Strategic Reserve — are helping to reduce higher costs that have hurt household finances, especially for low-income Americans and black and Hispanic households.

Still, Republicans point to persistently high inflation as one of the main issues in the midterm congressional elections, with polls showing that high prices have sent Biden’s approval ratings plummeting.

Other signs indicate that inflation could subside in the coming months. According to a survey by the Federal Reserve Bank of New York, Americans’ expectations for future inflation have declined, likely reflecting lower gasoline prices that are very visible to most consumers.

Inflation expectations can be self-fulfilling: if people think inflation will stay high or get worse, they are likely to take actions – such as demanding higher wages – that can drive up prices in a self-perpetuating cycle. Companies then often increase their prices to compensate for the increase in their higher labor costs. But the New York Fed’s survey found that Americans expect lower inflation in the next one, three and five years than a month ago.

Supply chain issues are also easing, with fewer ships docked off Southern California ports and shipping costs falling. Prices for commodities such as corn, wheat and copper fell sharply.

Yet in categories where price changes are more rigid, such as rents, costs continue to rise. A third of Americans rent their homes, and higher rental costs leave many with less money to spend on other items.

Stubborn inflation is not just an American phenomenon. Prices have jumped in the UK, Europe and less developed countries like Argentina.

UK inflation rose 9.4% in June from a year earlier, a four-decade high. In the 19 countries that use the euro, it reached 8.9% in June compared to a year earlier, the highest since the start of the registration of the euro.


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