WASHINGTON (AP) — Falling prices for gasoline, airline tickets and clothing have helped Americans take a small break from the pain of high inflation over the past month, even as overall price increases have eased from a four-decade high hit in June , only slightly slowed down.
Consumer prices rose 8.5% yoy in July, the government said on Wednesday, after rising 9.1% yoy in June. On a monthly basis, prices were flat from June to July, the smallest such increase in more than two years.
Much of the relief over the past month has been felt among travellers, with hotel room costs falling 2.7% from June to July, airfares nearly 8% and rental car prices a whopping 9.5%. Those price declines followed steep increases over the past year after COVID-19 cases eased and travel recovered. Airfares are still almost 30% higher than a year ago.
The decline in travel-related prices over the last month helped bring down what is known as core inflation, a metric that excludes the volatile food and energy categories to provide a clearer picture of underlying inflation. Core prices are up just 0.3% since June, the smallest month-on-month increase since March. And yoy, core inflation was 5.9% in July, the same yoy increase as in June.
All in all, the July numbers raised hope that inflation, after more than a year of unrelenting increases that weighed on household finances, was weighing on the American economy, prompting the Federal Reserve to aggressively raise lending rates, and President Joe’s public approval ratings Biden decreased, may have peaked.
Still, core prices have slowed in the recent past, only to pick up again in the months that followed. And even if inflation continues to moderate, it’s still a long way off the Fed’s 2% target for the year.
“There is good reason to believe that inflation will continue to slow,” said Michael Pugliese, an economist at Wells Fargo. “What I think is lost in this discussion is how much slow?”
Even if consumer inflation were to slow to 4% — less than half of its current level — Pugliese suggested that would still likely prompt the Fed to hike rates further.
Americans are still absorbing bigger price hikes than they have in decades. Food prices rose 1.1% in July, up 13% from a year ago, the biggest year-on-year increase since 1979. Bread prices rose 2.8% last month, the fastest in more than two years. Rent and medical expenses increased, albeit slightly less than in previous months.
Average paychecks are growing faster than they’ve been in decades, but not fast enough to keep up with these rising costs. As a result, some retirees have felt the need to return to the labor market in recent months.
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 meal stamps aren’t covering her escalating expenses.
“I’m constantly going over my budget, so I had to get a job,” Bulich said. “I wouldn’t even think about buying hamburger meat or a steak or anything.”
Now she worries that she will lose 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 a month, up from less than 4 million in January. The group has also budgeted for a 66% increase in fuel costs. That’s mostly because of higher gas prices, but also because more trucks are now being used to keep up with demand for groceries.
Altfest’s own rent recently rose 14%, he said, forcing him to recalibrate his budget.
“All these costs are going up at once,” he said. “The people here were already overwhelmed.”
Wednesday’s report fueled hopes that the modest slowdown in inflation could allow the Fed to slow the pace of its short-term rate hikes when it meets in late September — and boosted stock prices. How quickly and by how much the Fed raises the cost of borrowing has important implications for the economy: larger rate hikes tend to reduce borrowing and spending by consumers and businesses, making a recession more likely.
If the Fed doesn’t have to hike rates as much to dampen prices, it has a better chance of delivering an elusive “soft landing,” where growth slows enough to contain high inflation, but not so much that there will be a recession.
Biden echoed the report in comments he made on Wednesday, highlighting the flat monthly inflation figure:
“I just want to say one number: zero,” he told reporters. “Today we received the news that our economy had zero percent inflation in the month of July.”
Biden has pointed to falling gas prices as a sign that his policies — including large oil spills from the country’s strategic reserve — are helping to ease higher costs that have hit household finances, particularly for low-income Americans and black and Hispanic households .
Still, Republicans are emphasizing persistently high inflation as the top issue in the midterm elections, with polls showing that high prices have driven Biden’s approval ratings sharply lower.
There are further signs that inflation may ease in the coming months. According to a survey by the Federal Reserve Bank of New York, Americans’ expectations of future inflation have fallen, likely reflecting the fall in gas prices, which is clearly 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 steps – like demanding higher wages – that can push prices up in a self-perpetuating cycle. Companies then often raise prices to offset their higher labor costs. But the New York Fed survey found that Americans expect inflation to be lower in a year, three and five years from what it was a month ago.
Supply chain issues are also easing as fewer ships dock at Southern California ports and shipping costs drop. The prices for commodities such as corn, wheat and copper have fallen sharply.
However, in categories where price changes are more persistent, such as B. rents, the costs are still rising. A third of Americans rent their homes, and the higher cost of renting means many of them have less money to spend on other things.
Stubborn inflation is not just a US phenomenon. Prices have skyrocketed in the UK, Europe and less developed countries like Argentina.
In the UK, inflation rose 9.4% yoy in June, a four-decade high. In the 19 countries using the euro currency, it reached 8.9% year on year in June, the highest level on record for the euro.
Associated Press Writer Zeke Miller contributed to this report.