The new inflation data gives economists and policymakers more evidence that inflation is meaningfully cooling, good news more than a year into the Federal Reserve’s campaign to slow the economy and wrestle spending back under control.
The consumer price index rose 3.2 percent in the year to July, according to a report released Thursday. It marked the first acceleration in 13 months, and followed June’s 3 percent reading.
But that pickup needed context. inflammation Last year June was fast and the following month was slightly slower. That is, when this year’s numbers were measured against 2022’s readings, June was lower and July was higher than the previous year when the figures were more stable.
Economists are paying more attention to another statistic: the “core” inflation index, which strips out volatile food and fuel prices. This has risen to 4.7 percent in the past year, up from 4.8 percent in June. On a monthly basis, core inflation edged up just 0.2 percent, matching an encouraging low in the previous month.
The upshot of the report is that inflation continues to cool – and the July data provided positive signs for the future. Rental prices have moderated, which is expected to continue in the coming months, and will help weigh on overall inflation. An index that tracks prices of services outside housing has been rising slowly.
“It continues to be the kind of improvement that I think you should see,” said Omair Sharif, founder of Inflation Insights, a research firm. “Overall, it’s good news.”
Air fares fell sharply, hotel costs dropped and used cars became cheaper last month. Large declines in those categories may be difficult to sustain but are currently helping to contain price increases.
The new inflation figures are likely to focus attention on the central bank as officials ponder whether inflation has fallen enough for central bankers to stop raising interest rates. Policy makers have raised the benchmark rate 5.25 to 5.5 percent, was close to zero in March last year. It costs more to borrow money to buy a house or buy a car. As central bank moves work through the economy, they slow it down and limit how much companies can raise prices.
“There are a lot of seeds in this report,” said Laura Rosner-Warburton, senior economist at the research firm Macro Policy Perspectives. “That probably means we’re at — or very close to — the peak of interest rates. We think we’re at the peak.
Officials are debating whether to raise rates again this year to ensure the economy slows enough to warrant a full return to normal. Mr. Sharif also said he thought the new data would make it easier for officials who want to hold off on rate hikes to make their case at the central bank’s next meeting on September 20.
They “will have a lot of ammunition to avoid September, based on what the data is showing us right now,” he said.
Despite the positive news for the Fed, the July inflation report will make it more difficult for the Biden administration to brag, given the pickup in the headline number. Earlier reports showed a chill across the board.
And the headline inflation gauge is likely to rise further next month.
Gas prices Started taking At the end of July. Although it was too late for that month’s report, it lasted until August and could be a prop for inflation in the next set of figures – the last to be released before the central bank meets. The next decision on interest rates.
Paul Ashworth, North America chief economist at Capital Economics, wrote, “In addition to fueling a rebound in airfares through higher jet fuel prices, we expect a knock-on impact from higher fuel costs.”
Overall, he added, “there’s nothing here to suggest the Fed should move forward with more interest rate hikes this year.”