July Inflation Report: Inflation remains moderate as interest rates rise

Fresh inflation data provided economists and policymakers with more evidence that price increases are cooling down meaningfully, good news more than a year after the Fed campaigned to slow the economy and get cost increases back under control.

The consumer price index rose 3.2 percent in the year through July, according to a report released Thursday. It was the first acceleration in 13 months, and followed the 3 percent reading in June.

But this capture requires context. economic inflation It was fast in June last year and a little slower the next month. This means that when this year’s numbers were measured against the 2022 readings, June appeared lower, and July appeared higher than if last year’s numbers had been more stable.

Economists focus more on another number: the “core” inflation indicator that excludes volatile food and fuel prices. That rose 4.7 percent over the past year, down from 4.8 percent in June. On a monthly basis, core inflation rose by just 0.2 percent, which matched an encouraging lower reading in the previous month.

The report’s conclusion was that inflation continues to subside – the July details provided positive signs for the future. Rental prices were moderate, a trend that is expected to continue in the coming months and which should help reduce inflation in general. The index, which tracks prices for services outside of housing, is rising only slowly.

“This is a continuation of the kind of progress that I think you want to see,” said Amir Sharif, founder of research firm Inflation Insights. “Overall, this is very good news.”

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Airline prices fell sharply, hotel costs eased and used cars became cheaper last month. Significant declines in these categories can be difficult to sustain but are helping to limit price increases for the time being.

The new inflation numbers are likely to be a focus for the Federal Reserve, as officials ponder whether inflation has slowed enough for central bankers to stop raising interest rates. Policy makers raised the benchmark rate to Range from 5.25 to 5.5 percent, up from nearly zero in March last year. This makes it more expensive to borrow a house or buy a car. As the Fed’s moves work their way 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. This probably means that we are at – or very close to – a peak in interest rates. We think we’re at the top.”

Officials are debating whether they need to raise interest rates again this year to ensure the economy slows enough to ensure that inflation fully returns to normal. Similarly, Mr. Sharif said he believes the new numbers will make it easier for officials who want to delay raising interest rates to make their case at the next meeting of the Federal Reserve, on Sept. 20.

“They’ll have a lot of ammunition to get through September, based on what the data is showing us now,” he said.

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Even if it contains positive news for the Federal Reserve, the July inflation report may be more difficult for the Biden administration to show off, given the rebound in the headline number. Previous reports had shown an overall cooling to a degree.

There is a risk that the general measure of inflation will remain higher next month.

Gas prices began to pick up At the end of July. Although the jump came too late to matter much for that month’s report, it has persisted into August and will likely support inflation in the next set of numbers – which will be the last numbers released before the Fed meets to make it. The next decision on interest rates.

Paul Ashworth, chief North America economist at Capital Economics, writes that “other than triggering a rebound in airline ticket prices through higher jet fuel prices, we expect the detrimental impact of ‘high fuel costs’ to be very modest.”

He added that “there is nothing here to suggest that the Fed needs to move forward with rate hikes this year.”

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