When it comes to the economy, everything’s great and no one’s happy


Price pressures continued cooling last month, fresh inflation figures showed, likely deterring the Federal Reserve from raising interest rates at its September meeting.

The consumer-price index, a measure of goods and services prices across the economy, rose a mild 0.2% in July, the same as in June, the Labor Department said Thursday. Core prices, which exclude volatile food and energy categories, also increased just 0.2% in both months, extending a broader slowdown in price pressures.

The figures led to 3.2% annual inflation in July, up from 3% in June. Annual core inflation ticked down to 4.7% in July from June’s 4.8%.

Consumer price index, change from a year earlierSource: Labor DepartmentNote: Core excludes food and energy prices.
RECESSION0246810%Core +4.7%Overall +3.2%2015'20

The pickup in annual inflation was influenced by what happened in July of 2022, which serves as the basis for comparison. Economists don’t expect the annual rate of inflation to slow much more this year in part because of so-called base effects.

U.S. stocks rose following the positive inflation news, and bond yields held mostly steady.

Fed officials focus on core inflation because they see it as a better predictor of future inflation than the overall inflation rate.

The core CPI, in particular, adds to recent data that calls into question whether the central bank will need to raise rates again this year, as most officials had projected in June.

The new numbers lowered the three-month annualized rate of core inflation to 3.1%, the lowest such reading in two years, from 5% in May.

Annual rate of change for the core consumer price indexSource: Labor DepartmentNotes: Three-month change is seasonally adjusted and annualized; core prices exclude food and energy.
2020'21'22'23-2.502.55.07.510.0%Three-month period12-month period

“My God, that’s incredible,” said Laurence Meyer, a former Fed governor. “There’s absolutely no question that core inflation has turned the corner faster” than the Fed anticipated.

Even before Thursday’s report, a handful of Fed officials said the central bank could be close to pausing interest-rate increases after raising them at 11 of the past 12 central bank meetings. The Fed raised rates most recently last month to a range between 5.25% and 5.5%, a 22-year high.

In June, most officials projected they would raise rates at least to a range between 5.5% and 5.75% this year, but inflation has slowed markedly in the two months since they made those projections. Their next meeting is Sept. 19-20.

“I believe we may be at the point where we can be patient and hold rates steady,” Philadelphia Fed President Patrick Harker said in a Tuesday speech.

Federal Reserve officials see some encouraging signs that price pressures are easing. PHOTO: DAVID ZALUBOWSKI/ASSOCIATED PRESS

Boston Fed President Susan Collins said she also thought a pause could be appropriate soon. “My read of the data that we have so far is that we are near or perhaps at a sufficiently restrictive level of monetary policy to hold for some time,” she said in a Monday interview.

Others have said it is still too soon to tell whether the central bank will need to raise rates again. Signs of a potential reacceleration in demand indicate the Fed might have to raise rates again, Richmond Fed President Tom Barkin said in a Monday interview.

“I don’t want to declare a reacceleration too quickly [or] declare inflation settling too quickly,” Barkin said.

Prices for housing rose 0.4% in July from the prior month, the same increase as June, and accounted for more than 90% of the overall CPI increase, according to the Labor Department.

Slowing price increases for housing, including rent, can take time to show up in inflation data because of measurement lags. Housing inflation has cooled from earlier this year, a trend that should continue in coming months, which would put downward pressure on core inflation, said Kathy Bostjancic, chief economist at Nationwide Mutual.

Prices for used cars dropped 1.3% in July from June, continuing a reversal from a large surge during the economy’s rebound from the Covid-19 pandemic. Such declines could also help ease core inflation going forward, economists said.

Americans got a break on summer travel expenses with hotel and flight prices declining in July from June. Restaurant and bar prices rose modestly last month. Auto insurance prices jumped 2% for the month, amid a move up in rates this year.

Meanwhile, energy prices rose by a slight 0.1% in July but could put upward pressure on inflation in the coming months. The average U.S. price of a gallon of regular unleaded gasoline climbed gradually in July to $3.76 at the end of the month from roughly $3.54 at the start, according to OPIS, an energy-data and analytics provider.

Because the CPI is essentially based on average prices over the month, that recent move up in gasoline prices is likely to have more of an impact on August’s inflation data, economists said.

Consumer price index, change from a month earlierSource: Labor DepartmentNotes: Seasonally adjusted; core excludes food and energy prices.

Sanjay Vinaik, a retiree living in Lakewood Ranch, Fla., said he was shocked to see premium unleaded gasoline at $4.79 a gallon at a warehouse club last week. He filled up his tank anyway because the price was around 30 to 40 cents cheaper than at other stations.

Trips to warehouse stores are one of the many frugal habits Vinaik said he has adopted over the past year. Around nine months ago, Vinaik started buying conventional tomatoes because organic options were too expensive. He said he also stopped eating out and reduced new clothes purchases.

“Price increases are not as aggressive now, but the baseline prices have already gone up and that has impacted our behavior,” Vinaik said. “I think behavior changes will stay with us.”

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