A key measure of inflation eased last month as energy prices tumbled.
According to a Commerce Department report Friday that is closely watched by the Federal Reserve, consumer prices rose 6.3% in July from a year earlier, after posting an annual increase of 6.8% in June, the biggest jump since 1982. Energy prices made the difference in July: They dropped last month after surging in June.
So-called core inflation, which excludes volatile food and energy prices, rose 4.6% last month from a year ago, after rising 4.8% in June. The drop — along with a reduction in the Labor Department’s consumer price index last month — suggests that inflationary pressures may be easing.
On a monthly basis, consumer prices actually fell 0.1% from June to July, and core inflation increased 0.1%, the Commerce Department reported.
And the Federal Reserve appears ready to continue efforts to ensure that prices are moving in the right direction. Inflation started rising sharply in the spring of 2021 as the economy rebounded with surprising speed from the short but devastating coronavirus recession a year earlier.
The Commerce Department’s personal consumption expenditures, or PCE, index is less known than the Labor Department’s consumer price index, or CPI.
But the Fed prefers the PCE index as a gauge of inflationary pressures, partly because the Commerce Department index attempts to measure how consumers adjust to rising prices by, for example, substituting cheaper store brands for pricier name brands.
The CPI has been showing higher inflation than the PCE. Last month, for instance, the CPI was running at an 8.5% annual pace after hitting a four-decade high 9.1% in June.
One reason: The Labor Department’s index gives more weight to rents, which have soared this year.
The Commerce Department also reported Friday that Americans’ after-tax personal income rose 0.3% from June to July after adjusting for inflation; it has fallen in June. Consumer spending rose 0.2% last month after accounting for higher prices.
Spiking prices have become a political threat to the current administration and President Joe Biden was quick to point to the latest data that could show inflation is loosening its grip.
“The American people are starting to get some relief from high prices, and the Inflation Reduction Act that I signed last week will also help bring prices down,” Biden said Friday. “Gas prices decreased every day this summer — the fastest decline in over a decade. And, today’s report showed that personal income was up last month as well.”
The Federal Reserve was slow to respond to rising inflation, thinking it the temporary result of supply-chain bottlenecks. But as prices continued to climb, the U.S. central bank moved aggressively, hiking its benchmark interest rate four times since March.
On Friday, Fed Chairman Jerome Powell warned more explicitly than he has in the past that the Fed’s continued tightening of credit will cause pain for many households and businesses as its higher rates further slow the economy and potentially lead to job losses.
“These are the unfortunate costs of reducing inflation,” Powell said. “But a failure to restore price stability would mean far greater pain.”
Price pressures may already be easing as the U.S. economy slows. Gross domestic product — broadest measure of economic output — shrank in the first half of 2020 as borrowing costs increased. The housing market has been hit especially hard. And supply chain backlogs have started to unsnarl.
“Inflation appears to have peaked in mid-2022 and should slow on a year-over-year basis through the rest of this year and in 2023,” said Gus Faucher, chief economist at PNC Financial Services Group Inc.
Information for this article was contributed by Zeke Miller of The Associated Press.
Source: nwaonline.com
