HomeInternational NewsUS Inflation Hits Three-Year Low in July, Indicating Easing Price Hikes

US Inflation Hits Three-Year Low in July, Indicating Easing Price Hikes

Inflation in the United States reached its lowest level in over three years in July, indicating that the most significant price increases in four decades are beginning to ease. According to the latest report from the U.S. Department of Labor (U.S. Arbejdsministerium), consumer prices rose by only 0.2 percent from June to July, following a slight decline the previous month for the first time in four years. Year-over-year, prices increased by 2.9 percent, down from 3 percent in June, marking the mildest inflation rate since March 2021.

This ongoing decline in inflation may have implications for the upcoming presidential campaign in the U.S., where former President Donald Trump has highlighted rising inflation as a major shortcoming of President Joe Biden’s administration. However, consumer perceptions of the economy are often based on the prices of everyday essentials like food and gasoline, as well as the health of the stock market; lower inflation does not automatically translate into electoral gains for the Democratic Party, according to Ryan Sweet, Chief Economist at Oxford Economics.

The report indicated that nearly all of the inflation in July could be attributed to rising rents and housing costs, a trend that real-time data suggests is beginning to subside. Housing costs are expected to rise more slowly in the coming months, contributing to further reductions in inflation. In July, grocery prices increased by only 0.1 percent and are just 1.1 percent higher than a year ago. Although many Americans continue to struggle with high food prices, which are 21 percent higher than three years ago, average wages have also increased significantly during the same period.

Gasoline prices remained unchanged from June to July and have actually decreased by 2.2 percent over the past year. Clothing prices also fell in the previous month, while prices for both new and used cars have declined. Prices for used cars, which surged during the pandemic, have dropped by nearly 11 percent in the past year. Some food prices, including those for meat, fish, and eggs, are rising faster than before the COVID-19 pandemic; however, the prices of milk as well as fruits and vegetables declined in July.

The report shows that inflation is approaching the U.S. central bank’s target rate of two percent but without significant fluctuations, causing economists to worry about a potential weakening of the economy. Tara Sinclair, an economist at George Washington University, noted that the modest increase in core prices is reassuring.

While the July data might keep attention focused on a potential interest rate change in September, Sweet warns against overly high expectations for a substantial cut. The current interest rate in the U.S. has been at its highest level in 23 years, between 5.25% and 5.5%, for over a year. Austan Goolsbee, President of the Federal Reserve Bank of Chicago, stated in an interview that the July data clearly indicates a decline in inflation, which may pave the way for several rate cuts in the months ahead.

It has now been over two years since inflation peaked at 9.1 percent, the highest rate in four decades. Excluding volatile food and energy prices, core inflation rose by a modest 0.2 percent from June, indicating a continued stabilization of the economy. The central bank is expected to release another inflation report before its critical meeting in September, where economists anticipate that prices will continue to show moderate increases.

Inflation has significantly eased in recent years due to the rebuilding of global supply chains, a surge in apartment construction in many major cities, and higher interest rates that have slowed car sales. Consumers, especially those in low-income groups, are also becoming more price-conscious and opting for cheaper alternatives, putting pressure on many businesses to keep price increases in check.

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