Colder-than-expected July inflation data fueled hopes that consumer prices peaked earlier this summer after a year of relentless increases that crushed Americans, created a political storm for President Biden and forced the Federal Reserve to raise interest rates at the fastest pace in decades. .
The the consumer price index increased by 8.5% in July from a year earlier, a bigger decline from the 9.1% recorded in June than economists expected. On a month-to-month basis, the index was flat as declines in the cost of oil, gasoline and airfares offset increases in food prices and rents.
Excluding the more volatile measures of food and gasoline, prices jumped 5.9% in July, matching the previous month.
Although the slowdown is likely a welcome respite for the Fed as it attempts to rein in inflation, experts have warned that inflation remains painfully high and may be slow to return to pre-pandemic levels around 2%.
“We’re not far off the hook,” said Peter Earle, a research fellow at the nonprofit American Institute for Economic Research think tank. “There’s a long way to go, and a lot can happen before we get back to that zone of 1.5% to 2.5% annual inflation that Americans are used to.”
Whether inflation has truly peaked remains deeply uncertain, especially as COVID-19[feminine] and the Russian war in Ukraine continue to disrupt the global economy. Economists previously predicted the wave of inflation peaked, only to prove wrong the following month.
Still, the breakneck pace of price increases is expected to slow in the coming months, although it could be a long way back to “normal”.
“Within a month or two, there will be clearer evidence that inflation has peaked, but also evidence that the decline is painfully slow,” said Seema Shah, chief global strategist at Top Global Investors. “Households will unfortunately continue to feel the strain of elevated pricing pressures on their budgets, while continued wage growth will weigh on corporate profit margins.”
Searing inflation has created severe financial pressures for most American households, which are forced to pay more for daily necessities like food and rent. The burden is borne disproportionately by low-income Americans whose already-stretched paychecks are heavily impacted by price swings.
Although American workers have experienced strong wage increases in recent months, inflation has largely eroded them. Real average hourly wages fell 0.5% in July from the previous month, given rising consumer prices, according to the Labor Department. On an annual basis, real incomes even fell by 3% in July.
“While the improvement in the overall economic outlook is welcome, the easing of inflation will ring hollow with many low-end consumers whose wages are falling in real terms despite the drop in gasoline prices alone adding about $400 million to household balance sheets,” said RSM chief economist Joe Brusuelas.
Despite a monthly drop in energy prices in July, Americans are still paying significantly more for gasoline (32.9%) than a year ago. Households are also grappling with rising food prices, which have risen 13.1% over the past year, the largest increase since 1979, and increasingly high rents, which are rising by 6, 3%.
In fact, the average American pays $717 more per month because of the highest inflation in decadesaccording to an analysis by the Joint Economic Committee Republicans.
“While prices were unchanged from June to July 2022, prices increased 13.3% from January 2021 to July 2022, costing the average American household $717 in July 2022 alone,” the report reads. to analyse.
Even if prices stopped rising altogether, the inflation that has already occurred between August 2021 and July 2022 would cost the average American household an additional $8,607.
President Biden, which has been on the defensive for months in the face of soaring prices, hailed the fresher-than-expected report on Wednesday as evidence that inflation “may start to moderate.” But Biden acknowledged that the battle against inflation may not be over yet.
“We may face additional headwinds in the coming months,” he said. “Our work is far from over.