Inflation backs off modestly to 8.5%

But June to July prices stagnant

Falling prices for fuel, airline tickets and clothes offered Americans a slight break from inflation last month, though overall price increases slowed only modestly from the four-decade high reached in June.

The Consumer Price Index grew 8.5% in July compared with a year earlier, down from the 9.1% year-over-year increase in June, the Labor Department said Wednesday. On a monthly basis, prices remained unchanged from June to July.

Core inflation, excluding volatile food and energy, meanwhile, rose 0.3% from June and 5.9% from a year ago. While those figures were better than expected, Federal Reserve officials are likely concerned at how far they are from the set 2% in-

flation goal.

”Core inflation remains on an upward trajectory due to rising housing rental costs and service-sector inflation pressures,” James Knightley, chief international economist at ING Financial Markets, said. “The case for a third consecutive 75 basis-point rate hike in September remains strong and will likely recover if we are right on core inflation moving higher in August.”

But some economists say the data released Wednesday gives the Fed breathing room as markets are now pricing in the likelihood of a 50 basis-point increase in September and less than 100 basis points of hikes over the next two meetings. The call likely will be tight.

“Whether it’s 50 or 75 in September is probably going to go down to the wire,” said Derek Holt, an economist at Scotiabank. “Right now, I’d give the bigger nod to the intensifying tightness in the job market that fans concern over wage-driven catalysts to future inflation versus the latest CPI print, but it’s premature to judge the September move.”

The central bank’s policy-setting Federal Open Market Committee raised its benchmark rate by three-quarters of a percentage point in July for the second straight month, marking the most aggressive back-toback increases in more than a generation to tame inflation.

“Both headline and core CPI inflation were surprisingly soft in July, but with recent wage and productivity data signaling price pressures ahead, the Federal Reserve is unlikely to step back from the inflation fight just yet,” economists Anna Wong and Andrew Husby wrote in a note for Bloomberg Economics.

“Another soft print is likely in August as gasoline prices have continued to decline. Market perception of an imminent dovish Fed pivot has eased financial conditions, complicating the central bank’s task to tamp down inflation and raising the risk it will have to reset market expectations,” Wong and Husby wrote.

Fed Chairman Jerome Powell told reporters after the July 27 decision that officials could increase rates by the same amount at the next meeting — depending on readings from the economy in the meantime — though they would slow at some point in the future.

Fed officials who’ve spoken more recently have pushed back against the narrative in financial markets that policymakers see a pivot away from tightening amid evidence of a turn in the economy, saying that returning price growth to the 2% goal remains a priority.

The committee next gathers Sept. 20-21. Fed officials have said they want months of evidence that prices are cooling, especially in the core gauge. They’ll have another round of monthly CPI and jobs reports ahead of the September meeting.

STILL-GROWING BILLS

Although the CPI came in lower than expected in July, inflation continues to hit grocery shopping.

The food-at-home category soared 13.1 % over the last year, the largest increase since the period ending March 1979, according to the Labor Department. Grocery prices increased 1.1% in July.

Egg prices in particular have been driven higher by one of the worst bird flu outbreaks in U.S. history, killing more than 30 million commercial and wild birds.

The crisis hurt laying hens and turkeys the most, driving up egg prices a whopping 47% in July over last year, according to retail analytics firm Information Resources Inc.

Average paychecks are rising faster than they have in decades, but not fast enough to keep up with those rising costs. As a result, some people who had retired have felt the need in recent months to return to the workforce.

Among them is Charla Bulich, who lives in San Leandro, Calif. For the past six months Bulich, 73, has worked a few hours a week caring for an elderly woman because her Social Security and food stamps don’t cover her rising costs.

“I go over my budget all the time — that’s why I had to go get a job,” Bulich said. “I wouldn’t even think about buying hamburger meat or a steak or something like that.”

Micheal Altfest, director of community engagement at the Alameda County Community Food Bank in Oakland, Calif., said his organization now provides about 4.5 million pounds of food a month, up from below 4 million in January.

The group has also budgeted for a 66% increase in fuel costs. That’s mostly because of higher gas prices but also because it’s now using more trucks to keep up with the demand for food.

Altfest’s own rent recently jumped 14%, he said, forcing him to recalibrate his budget.

“All these costs are going up, all at once,” he said. “The people here were stretched already.”

Much of the apparent relief last month was felt by travelers: Hotel room costs fell 2.7% from June to July, airfares nearly 8% and rental car prices a whopping 9.5%.

Those price declines followed steep increases in the past year after covid-19 cases eased and travel rebounded. Airfares are still nearly 30% higher than they were a year ago.

A HOPEFUL PRESIDENT

Biden seized on the report in remarks he made Wednesday, highlighting the flat monthly inflation figure compared to June.

“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.”

Biden has pointed to declining gas prices as a sign that his policies — including large releases of oil from the nation’s strategic reserve — helped lessen higher costs that have hurt household finances, particularly for lower-income residents and Black and Hispanic households.

Yet Republicans are stressing the persistence of high inflation as a top issue in the midterm congressional elections, with polls showing that elevated prices have driven Biden’s approval ratings down sharply. There are other signs that inflation may fade in coming months.

Americans’ expectations for future inflation have fallen, according to a survey by the Federal Reserve Bank of New York, likely reflecting the drop in gas prices that is highly visible to most consumers.

Inflation expectations can be self-fulfilling: If people believe inflation will stay high or worsen, they’re likely to take steps — such as demanding higher pay — that can send prices higher in a self-perpetuating cycle.

Companies then often raise prices to offset their higher labor costs. But the New York Fed survey found that Americans’ foresee lower inflation one, three and five years from now than they did a month ago.

Supply chain snarls are also loosening, with fewer ships moored off Southern California ports and shipping costs declining. Prices for commodities like corn, wheat and copper have fallen steeply.

Stubborn inflation isn’t just a U.S. phenomenon. Prices have jumped in the United Kingdom, Europe and in less developed nations such as Argentina.

In the U.K., inflation soared 9.4% in June from a year earlier, a four-decade high. In the 19 countries that use the euro currency, it reached 8.9% in June compared with a year earlier, the highest since record-keeping for the euro began.