The Manila Times

US inflation cooled to 8.5% in July

ASHINGTON, D.C.: Falling prices of gas, airline tickets and clothes gave Americans a little bit of relief last month, though overall inflation is still near its highest level in four decades.

Consumer prices jumped 8.5 percent in July from a year earlier, the United States government said on Wednesday (Thursday in Manila), down from a 9.1-percent year-on-year increase in June. On a monthly basis, prices were unchanged from June to July, the first time that has happened after 25 months of increases.

The report offered welcome news for congressional Democrats and President Joe Biden heading into November’s midterm elections. The US leader highlighted the flat monthly inflation figure.

“I just want to say a number: zero,” he told reporters. “Today, we received news that our economy had zero percent inflation in the month of July.”

Republicans, who have made inflation a top campaign issue, stressed that prices are still painfully high. One of them, Rep. Kevin Brady of Texas, highlighted grocery costs and said Americans “continue to struggle under President Biden’s cruel economy, with shrinking paychecks, a shrinking economy and a shrinking workforce.”

The reprieve offered no certainty that prices would keep declining. Inflation has slowed in the recent past only to reaccelerate in subsequent months. And even if price increases continue to weaken, they are a long way from the Federal Reserve’s (Fed) 2-percent annual target.

“There’s good reason to think inflation will continue to slow,” said Michael Pugliese, an economist at Wells Fargo. “What I think gets lost in that discussion is: slow by how much?”

Even if it were to fall to 4 percent — less than half its current level — Pugliese suggested that the US central bank would need to keep raising interest rates or at least keep them high.

Travelers benefit most

Much of the relief last month was felt by travelers: hotel room costs fell 2.7 percent from June to July; airfares, nearly 8 percent; and rental car prices, 9.5 percent. Those price drops followed steep increases in the past year after Covid-19 cases eased and travel rebounded. Airfares are still nearly 30 percent higher than they were a year ago.

Gas prices dropped from $5 a gallon on average in mid-June to $4.20 by the end of last month, and were just $4.01 on Wednesday, according to the American Automobile Association. Oil prices have also fallen, and cheaper gas is likely to pull down inflation this month, too, economists said.

Last month’s declines in travelrelated prices helped lower core inflation, a measure that excludes the volatile food and energy categories and provides a clearer picture of underlying price trends. Core prices rose just 0.3 percent from June, the smallest monthto-month increase since March. Compared with a year ago, core inflation reached 5.9 percent in July, the same year-on-year increase as in June.

The July figures raised hope that inflation may have peaked after more than a year of relentless increases that have strained household finances, soured Americans on the economy, led the Fed to raise borrowing rates aggressively and diminished Biden’s public approval ratings.

Americans are still absorbing bigger price increases than they have in decades. Grocery prices climbed 1.1 percent in July and are 13 percent higher than a year ago, the largest year-on-year jump since 1979. Bread prices inched up 2.8 percent last month, the most in more than two years. Rental and medical care costs rose, though slightly less than in previous months.

Last month’s modest inflation slowdown might enable the Fed to slow the pace of its increases in short-term rates when it meets in late September — a possibility that sent stock prices jumping. How quickly and how far the Fed raises borrowing costs has significant effects on the economy: sharper hikes tend to reduce consumer and business borrowing and spending and make a recession more likely.

If the Fed doesn’t have to raise rates as high to restrain prices, it has a better chance of engineering an elusive “soft landing,” whereby growth slows enough to curb high inflation but not so much as to cause a recession.

Foreign Business

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2022-08-12T07:00:00.0000000Z

2022-08-12T07:00:00.0000000Z

https://digitaledition.manilatimes.net/article/281870122216029

The Manila Times