Annual inflation hit its lowest level in more than three years in July, the latest sign that the worst price rise in four decades is fading and preparing the US Federal Reserve for an interest rate cut in September.
Wednesday US Department of Labor report showed that consumer prices rose just 0.2% between June and July, after falling slightly the previous month for the first time in four years. Measured against the previous year, prices rose 2.9%, down from 3% in June. It was the mildest annual inflation figure since March 2021.
The current slowdown in inflation could affect the US presidential campaign, as candidate and former president Donald Trump highlighted galloping inflation as a fundamental flaw of current president Joe Biden’s administration.
However, consumers tend to look at the prices of everyday products like groceries and gasoline, as well as the health of the stock market, and their view of the state of the economy is based on this. and not in global data, said Ryan Sweet, US director general. economist at Oxford Economics, adding that lower inflation was not an automatic victory for the Democratic Party.
The government said that almost all of July’s inflation reflected higher rental prices and other housing costs, a trend that, according to real-time data, is slowing. As a result, housing costs are expected to rise more slowly in the coming months, contributing to lower inflation.
In July, food prices rose just 0.1% and are just 1.1% above prices a year ago, a much slower pace of growth than in previous years. However, many Americans continue to struggle with food prices, which remain 21% above levels three years ago, even though average wages have also risen sharply since then.
Gasoline prices remained unchanged between June and July and fell 2.2 percent last year. Clothing prices also fell last month; they are almost unchanged from the previous 12 months. New and used car prices also fell in July. Used car prices, which soared during the pandemic, fell nearly 11% last year.
Prices for some foods, including meat, fish and eggs, continue to rise faster than before the COVID-19 pandemic. Dairy and fruit and vegetable prices, however, fell in July.
Wednesday’s report showed that inflation is falling steadily closer to the US Fed’s 2% target – although not too quickly, which could suggest the economy is weakening, said Tara Sinclair, an economist. from George Washington University and a former Treasury Department official.
“It’s a reassuring report, both because it goes in the right direction and because it doesn’t do anything too dramatic,” Sinclair said. “It’s exactly what we wanted to see.”
Sweet said that while July’s data keeps the Fed on track for an interest rate cut in September, “don’t hold your breath for a huge cut,” adding that “the call for a 50 basis point cut is a reaction exaggerated.”
The US central bank has kept rates at their highest level in 23 years, between 5.25% and 5.5%, for more than a year, and Sweet was referring to calls from some corners of Wall Street for a rate cut. at least 50 basis points, following data from earlier this month. showed that the unemployment rate soared to 4.3 percent, intensifying fears that the U.S. economy was heading toward a recession.
Basis points are a standard measurement for interest rates, and a basis point is one hundredth of a percentage.
Economists attribute this jump mainly to an influx of job seekers, especially new immigrants, who did not find work immediately and were therefore classified as unemployed.
Austan Goolsbee, president of the Fed’s Chicago branch, said Wednesday in an interview with The Associated Press that July data shows inflation is clearly on track to return to the central bank’s 2 percent target. He also noted that there are signs that the labor market is weakening, even as the Fed’s key rate remains at its highest level in decades.
Goolsbee’s remarks suggested he would support a series of rate cuts in the coming months.
“If you take the last seven months of last year and now the last few months, they show very strong progress on inflation,” he said. “And the employment side is at least cooling down. So I think it’s worth giving some serious thought.”
Price cooling
For nearly a year, cooling inflation has provided gradual relief to U.S. consumers, who were hit by price hikes that erupted three years ago, especially for food, gasoline rentals and other necessities. Inflation peaked two years ago at 9.1%, the highest level in four decades.
In July, excluding volatile food and energy costs, so-called basic prices rose slightly by 0.2% compared to June, after an increase of 0.1% in the previous month. And compared to the previous year, underlying inflation slowed from 3.3% to 3.2% – the lowest level since April 2021. Core prices are closely watched by economists because they typically provide a better read on the direction of inflation. inflation.
When the central bank reduces its benchmark rate, over time it tends to reduce the cost of borrowing for consumers and businesses. Mortgage rates have already declined in anticipation of the Fed’s first rate cut.
At a press conference last month, Fed Chairman Jerome Powell said this spring’s cooler inflation data reinforced the Fed’s confidence that price increases are slowing to a 2% annual pace. Another inflation report will be released next month ahead of the Fed’s Sept. 17-18 meeting, with economists hoping that report will also show that price increases have remained largely subdued.
Inflation has declined substantially over the past two years as global supply chains have been repaired, a wave of apartment construction in many major cities has cooled rental costs, and higher interest rates have slowed car sales, forcing dealers offering better deals to potential car buyers.
Consumers, especially low-income consumers, are also becoming more price sensitiveforgoing expensive items or switching to cheaper alternatives. This has forced many companies to control price increases or even offer lower prices.
Prices for some services continue to rise sharply, including car insurance and health care. Auto insurance costs have soared as the value of new and used vehicles has soared compared to three years ago. They jumped 1.2% between June and July alone, defying expectations for a smaller gain.
This story originally appeared on Aljazeera.com read the full story
