According to a US Labor Department study, consumer prices decreased slightly in June for the first time in four years, but then increased by just 0.2% in July.
July saw year-over-year inflation hit its lowest point in almost three years, the most recent indication that the greatest price increase in four decades is abating and paving the way for a September interest rate decrease by the Federal Reserve.
Consumer prices increased by just 0.2% in July, according to the Labor Department’s data released on Wednesday, following a modest decline in June for the first time in four years. Prices increased 2.9% compared to a year ago, down from 3% in June. Since March 2021, this is the lowest inflation rate compared to the previous year.
Nearly all of the increase last month, according to the government, was caused by rising housing and rental costs—a trend that appears to be abating based on real-time statistics.
America’s consumers, who were hurt by the price spikes that erupted three years ago, especially for food, petrol, rent, and other essentials, have been gradually getting respite from the price increases for months thanks to a slowdown in inflation.
The presidential election has become heavily influenced by inflation, which former President Donald Trump attributes to price hikes brought on by the Biden administration’s energy policy. On Saturday, Vice President Kamala Harris announced that fresh ideas to “bring down costs and also strengthen the economy overall” will be unveiled shortly.
After rising by 0.1% in June, so-called core prices increased by 0.2% in July when the erratic food and energy categories were excluded. Core inflation increased 3.2% over the previous year, down from 3.3% in June—the lowest level since April 2021. Economists keep a careful eye on core prices because they usually give a more accurate picture of the direction of inflation.
Fed Chair Jerome Powell has stated that before the Fed starts lowering its benchmark interest rate, he is looking for further proof of a weakening economy. Most economists predict that the Fed will lower interest rates for the first time in mid-September.
In general, the cost of borrowing for households and companies decreases when the central bank reduces its benchmark rate. The first rate cut by the Fed has already caused a fall in mortgage rates.
that price rises are returning to a 2% annual rate due to the lower inflation readings from this spring. Next month, before the Fed’s meeting on September 17–18, another inflation report is scheduled to be released. Economists anticipate that this data will similarly demonstrate that price rises have been quite moderate.
Over the last two years, there has been a significant decrease in inflation due to the restoration of global supply chains, the development of apartments in many major cities, which has reduced rental prices, and the slowdown in vehicle sales caused by higher lending rates, which has forced dealers to give prospective purchasers better bargains.
Additionally, consumers—especially those with lower incomes—are become more cost conscious, eschewing expensive products in favor of less expensive ones. Many businesses have been compelled by this to limit price increases or even to provide reduced prices.
Certain services, including health care and vehicle insurance, continue to see significant price increases. The cost of auto insurance has skyrocketed in tandem with the rise in both new and used car values over the past three years. However, economists predict that those expenses will gradually rise more slowly.
The Fed is keeping a closer eye on the labor market as inflation continues to drop. Congress has established two main objectives for the central bank: maintaining price stability and promoting full employment.
The government said this month that the unemployment rate increased for a fourth consecutive month, while it is still very low at 4.3%, and that hiring slowed considerably more than anticipated in July. The numbers shook the financial markets and encouraged many analysts to raise their estimates for this year’s interest rate reductions. The majority of economists now predict that the Fed will decrease interest rates by at least three-quarter points in September, November, and December. The Fed benchmark rate, which stands at 5.3%, is at a 23-year high.
Nonetheless, the increase in the unemployment rate has primarily been attributed to a surge of job searchers, particularly recent immigrants, who have been labeled unemployed since they haven’t been able to find jobs right away. If there is a higher unemployment rate due to it rather than an increase in layoffs, that is a far more encouraging explanation. Job cut metrics are still modest.
The most recent retail sales figures, which the government will issue on Thursday, should indicate a little uptick in consumer spending in July. Businesses are likely to retain their employees and even hire more as long as consumers are prepared to spend.
