The pace of price increases slowed in the US in July as gas prices declined, pushing annual inflation down to 8.5%, still close to a multi-decade high but below the four-decade peak recorded in June. reaches.
The July figure, while still high, represents a significant drop from the 9.1% annualized rate recorded in June and will raise hopes that US inflation has finally peaked. It follows other indicators that have suggested that price gains are finally moderating.
But the report showed once again how broadly inflation has spread throughout the economy. After excluding food and energy costs – which are highly volatile – prices rose 5.9% in the year to the end of July, in line with last month’s reading.
Gas prices have fallen sharply in the US after hitting a national average of $5 per gallon in mid-June. They now average just over $4 a gallon, up about $1 from the same time last year, according to AAA. Prices for other commodities, including copper, wheat and corn, have also fallen in recent weeks after rising sharply following the Russian invasion of Ukraine.
The Labor Department reported that the gasoline index fell 7.7% in July, offsetting the rises in the food and shelter indices. The food index rose 10.9% last year, the largest increase in 12 months since the period ending in May 1979.
Energy and food prices are notoriously volatile and could still rise. And prices are still rising for other essentials, including housing and services like health care, which may not fall as quickly as oil or corn.
The decline in inflation will be a boon to the Biden administration, which passed the $739bn Inflation Reduction Act in the Senate this week. The bill aims to tackle the climate crisis while cutting healthcare costs and raising taxes on large businesses.
The bill was passed shortly after the administration announced that the US had added 528,000 new jobs in July, much higher than expected and a new boost for Biden.
But the still hot job market and still high inflation mean the Federal Reserve will likely continue to raise interest rates as it tries to bring inflation back to its target of 2%.