July’s cooler-than-expected inflation data fueled hopes that consumer prices peaked earlier this summer after a year of relentless surges that crushed Americans, sparked a political storm for President Biden and the Federal Reserve forced interest rates at the fastest pace in decades. increase .
The consumer price index rose 8.5% year-on-year in July, a bigger drop from 9.1% in June than economists had expected. On a monthly basis, the index did not move at all, as declines in the cost of oil, gasoline and airline tickets offset increases in food and rent.
Excluding the more volatile readings of food and gasoline, prices rose 5.9% in July, similar to the previous month.
While the slowdown is likely to be a welcome change for the Fed as it tries to bring inflation under control, experts warned that inflation remains painfully high and could slowly return to pre-pandemic levels of around 2%.
INFLATION STILL DESTROY US AVERAGE WAGE EARNINGS
“We’re a long way from getting out of the woods,” said Peter Earle, a research fellow at the nonprofit think tank the American Institute for Economic Research. “There’s still a long way to go and a lot can happen before we get back to that 1.5% to 2.5% annualized inflation range that Americans are used to.”
Whether inflation has truly peaked remains highly uncertain, especially as COVID-19 and the Russian war in Ukraine continue to disrupt the global economy. Economists have previously predicted that the inflation wave would peak, but the following month proved otherwise.
Still, the scorching pace of price increases is expected to slow in the coming months, although it could be a long descent to “normal”.
INFLATION DISTRIBUTION IN JULY: WHERE ARE THE RISING PRICES HITTING AMERICANS HARDEST?
“Within a month or two, there will be clearer evidence that inflation has peaked, but also that the decline is painfully slow,” said Seema Shah, chief global strategist at Principal Global Investors. “Households will unfortunately continue to feel the heavy pressure of increased price pressures on their budgets, while continued wage growth will take its toll on corporate profit margins.”
The scorching inflation has put severe financial pressure on most American households, who have been forced to pay more for daily necessities such as food and rent. The burden is disproportionately borne by low-income Americans, whose already stretched paychecks are heavily impacted by price fluctuations.
While American workers have seen significant wage increases in recent months, inflation has largely eroded them. Real average hourly wages fell 0.5% in July from the previous month, taking into account higher consumer prices, the Ministry of Labor said. On an annual basis, real profit even fell by 3% in July.
While the overall economic outlook is welcome, declining inflation will ring hollow for many lower-market consumers, whose wages are falling in real terms despite the drop in gasoline prices alone, adding about $400 million dollars to household balance sheets. will add,” said RSM. chief economist Joe Brusuelas.
Despite a monthly drop in energy prices in July, Americans still pay significantly more for gasoline (32.9%) than they did a year ago. Households also face rising food prices, which have risen by a staggering 13.1% in the past year, the most significant increase since 1979, and ever steeper rents, which have risen by 6.3%.
In fact, the average American shells out an extra $717 a month because of the highest inflation in decadesaccording to an analysis by Republicans of the Joint Economic Committee.
“While prices did not change from June to July 2022, prices increased by 13.3% from January 2021 to July 2022, costing the average U.S. household $717 in July 2022 alone,” the analysis said.
Even if prices didn’t rise at all, the inflation that already happened between August 2021 and July 2022 would cost the average American household an additional $8,607.
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President Biden, who has been on the defensive for months on skyrocketing prices, praised Wednesday’s cooler-than-expected report as evidence that inflation “may be beginning to moderate.” But Biden acknowledged that the fight against inflation may not be over.
“We may have additional headwinds in the coming months,” he said. “Our work is far from over.”