Consumer prices rose 8.5% in July, less than expected as inflation pressures ease a bit

The prices consumers paid for different goods and services rose 8.5% from one year earlier in July. It was an increase of 8.5% compared with a year prior, which is mainly due to lower gasoline prices.

According to Bureau of Labor Statistics, on a monthly basis the consumer price index was stable as gasoline prices fell 7.7% and energy prices generally declined 4.6%. This offset an increase of 1.1% in food prices each month and 0.5% in shelter cost.

Dow Jones surveyed economists and found that they expected headline CPI to rise 8.7% annually, 0.2% per month.

The core CPI, which excludes volatile foods and high energy prices, rose by 5.9% and 0.3% annually, respectively, as compared to respective estimates of 6.1%, 0.5%, and 7.1%, respectively.

The inflation pressures remain strong, despite lower-than-expected figures.

In the past 12 months, the increase in food index was 10.9%. It is the fastest rate of growth since May 1979. The butter has increased 26.4% in the last year while eggs have risen 38%, and coffee is higher than 20%.

The monthly decline in energy index was despite the fact that electricity prices increased 1.6%, and were 15.2% higher than a year earlier. From a year earlier, the energy index rose by 32.9%.

Prices of used vehicles fell 0.4% in the last month, with apparel prices falling 0.1%. Transportation services fell 0.5%, as airline fares dropped 1.8% and 7.8% respectively, from one year ago.

Markets responded positively to this report with futures tied the Dow Jones Industrial Average rising more than 400 point and yields for government bonds falling sharply.

Aneta Markowska (chief economist, Jefferies) stated that “things are moving in a positive direction.” “This report is one of the most encouraging we have seen in some time.”

Workers saw an increase of 0.5% in their real wages each month, which was good news. However, inflation adjusted average hourly earnings still fell 3% from last year.

Shelter costs which account for about one third of CPI weighting continue to increase and have increased by 5.7% in the last 12 months.

New York City shoppers shop at a grocery on June 10, 2022.
Spencer Platt | Getty Images

Although inflation pressures may be decreasing, they are still at or near the highest level since 1980.

Policymakers have been plagued by a combination of slow growth and congestion in supply chains.

After rising to more than $5 a gallon in July, there was some optimism after the July decline in gas prices. However, gasoline prices were still higher than a year ago. Fuel oil rose 75.6% annually despite a 11% decrease in July.

Federal Reserve officials use a combination of interest rate hikes and tightening monetary policy to try to reduce inflation, which is well above their long-term target of 2%. In 2022, the benchmark borrowing rate was increased by 2.25 percentage point. Officials are indicating that there will be more.

A New York Fed survey showed that people have reduced their inflation expectations in the past week. The soaring cost-of-living is still a major problem.

Although inflation is increasing, the gross domestic product has declined in the first quarter of 2022. Combining slow growth with increasing prices can be associated with stagflation. Two consecutive quarters without positive GDP are widely accepted as a definition of recession.

Fed officials could be criticized for Wednesday’s inflation numbers.

According to policymakers, a third straight 0.75 percentage points interest rate rise is expected at September’s meeting. The CPI report prompted market pricing to reverse. Traders are now expecting a lower 0.5 percent move.

Markowska declared that the report “at least takes the pressure off of the Fed at its next meeting.” They’ve said they are ready to give a 75-basis point increase if necessary. “I don’t believe they need to.”

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