The downward trend in U.S. inflation is positive news, but the Federal Reserve’s 2% target has still not been reached.
- The downward trend in U.S. inflation is positive news, but the Federal Reserve’s 2% target has still not been reached.
- Core inflation, a key measure that excludes volatile food and fuel prices, also dropped one-tenth of a percentage point year-over-year to 3.2%, and rose two-tenths on a monthly basis.
- The gasoline index also remained stable in July and has fallen 2.2% over the past year.
- The decrease in U.S. inflation is due to several factors, including:
- However, some challenges remain:
The U.S. Consumer Price Index (CPI) saw inflation drop one-tenth of a percentage point in July to 2.9% compared to June’s figure, still above the Federal Reserve’s 2% target despite high interest rates.
July’s figure is the lowest inflation rate since March 2021, raising expectations that the Federal Reserve (Fed) may decide to begin cutting interest rates at its September meeting with a quarter-point reduction.
The U.S. Bureau of Labor Statistics (BLS) reported this Wednesday that consumer prices increased two-tenths of a percentage point compared to June.
Core inflation, a key measure that excludes volatile food and fuel prices, also dropped one-tenth of a percentage point year-over-year to 3.2%, and rose two-tenths on a monthly basis.
U.S. President Joe Biden celebrated the figure but lamented that “prices remain too high: big corporations are raking in record profits and aren’t doing enough to lower prices.”
The BLS noted that the shelter index rose in July (0.4% monthly), contributing to over 90% of the monthly increase in prices across all items. Shelter costs have risen 5.1% year-over-year.
Energy prices remained stable after declines in the two previous periods and have risen 1.1% over the past 12 months, while food prices increased two-tenths in July, with a 2.2% year-over-year rise.
The gasoline index also remained stable in July and has fallen 2.2% over the past year.
With this, inflation has now seen four consecutive declines since March’s figure of 3.5%.
The Fed has kept interest rates steady since July 2023 in a range of 5.25% to 5.5%, their highest level since 2001, following eleven hikes that began in March 2022.
All eyes are now on the institution’s monthly meeting, scheduled for September 17-18, where a first rate cut is expected.
Federal Reserve Chair Jerome Powell has insisted that he wants to see sustained inflation declines and price increases stabilizing around 2% before making that decision.
The decrease in U.S. inflation is due to several factors, including:
Decline in energy prices: Particularly oil, which has had a significant impact on overall inflation.
Relief in supply chain pressures: Improvements in the production and distribution of goods have helped moderate prices.
Increase in interest rates: The Federal Reserve has raised interest rates to cool the economy and reduce demand, which in turn has helped control inflation.
However, some challenges remain:
Core inflation: While overall inflation has decreased, core inflation (which excludes food and energy prices) remains high in some sectors.
Global economic uncertainty: Factors such as the war in Ukraine and geopolitical tensions can create volatility in commodity prices and affect inflation.
The Federal Reserve will continue to closely monitor the economic situation and may adjust its monetary policy based on inflation trends and other indicators.
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