New inflation data has provided economists and policymakers with more evidence that price increases are slowing significantly, good news more than a year after the Fed campaigned to slow the economy and rein in cost increases.
The consumer price index rose 3.2 percent in the year to July, according to a report released on Thursday. It was the first acceleration in 13 months and followed June’s 3 percent reading.
But this capture requires context. economic inflation It was fast in June last year and a little slower the following month. This means that when this year’s numbers were measured against the 2022 readings, June would look lower and July would look higher than if last year’s numbers were more stable.
Economists focus more on another number: the “core” inflation indicator that excludes volatile food and fuel prices. That rose 4.7 percent last year, down from 4.8 percent in June. On a month-on-month basis, core inflation rose just 0.2 percent, which matched an encouraging lower reading in the previous month.
The conclusion of the report was that inflation continues to fall – the July details provided positive signs for the future. Rental prices were moderate, a trend that should continue in the coming months and which should help to reduce inflation in general. The index, which tracks prices for non-housing services, is rising only slowly.
“This is a continuation of the kind of progress I think you want to see,” said Amir Sharif, founder of research firm Inflation Insights. “Overall, this is very good news.”
Airline prices have dropped sharply, hotel costs have declined, and used cars have gotten cheaper in the past month. Significant declines in these categories could be difficult to sustain, but they are helping to limit price increases for now.
The new inflation figures are likely to be the focus of the Federal Reserve as policymakers ponder whether inflation has slowed enough for central bankers to stop raising interest rates. Policymakers raised the benchmark rate for the Range from 5.25 to 5.5 percent, up from nearly zero in March of last year. This makes it more expensive to borrow a house or buy a car. As the Fed moves through the economy, they slow it down and reduce how much companies can raise prices.
“There are a lot of seeds in this report that point to more inflation to come,” said Laura Rosner-Warburton, chief economist at research firm Macropolicy Perspectives. That probably means we’re at – or very close to – a spike in interest rates. We think we are on top.”
Policymakers are debating whether they need to raise interest rates again this year to ensure the economy slows enough to ensure inflation fully returns to normal. Likewise, Sharif said he believes the new numbers will make it easier for policymakers who want to delay raising interest rates to make their case at the next Federal Reserve meeting on Sept. 20.
“They will have plenty of ammunition to survive through September based on what the data is showing us now,” he said.
Even if it contains positive news for the Federal Reserve, the July inflation report may be more difficult for the Biden administration to show, given the recovery in the headline number. Previous reports have shown a general cooling to some extent.
There is a risk that the overall measure of inflation will remain higher in the coming month.
Gasoline prices started to pick up in late July. While the jump came too late to matter much for that month’s report, it persisted into August and is likely to support inflation in the next set of numbers – which will be the last numbers released before the Fed convenes to do so. The next decision on interest rates.
Paul Ashworth, Chief North America Economist at Capital Economics, writes that “In addition to triggering a rebound in airline ticket prices through higher jet fuel prices, we expect the negative impact of ‘high fuel costs ’ be very modest.”
THE NAIS IS OFFICIAL EDITOR ON NAIS NEWS