Annual U.S. inflation rises in July, but underlying price pressures remain modest
Introduction
The consumer-price index (CPI) indicates that annual U.S. inflation increased in July. However, the rise in core prices, which exclude volatile food and energy categories, was relatively moderate for the month.
Annual Inflation
According to the Labor Department, the consumer-price index rose by 3.2% in July compared to the previous year. This is a slight increase from the 3% recorded in the year through June. On the other hand, core prices saw a small decrease, rising by 4.7% in July compared to the same period last year, as opposed to June's 4.8% increase.
Monthly Figures
The monthly figures provide a more positive perspective on current price trends. Both the CPI and core CPI increased by just 0.2% in July, similar to June's figures. This suggests that inflation is not experiencing any significant resurgence.
The Importance of Core CPI
Federal Reserve officials consider core inflation a reliable indicator of future inflation rates. Given the relatively stable growth in core CPI, it may influence the Fed's decision to maintain its benchmark interest rate during the September policy meeting.
Conclusion
While annual U.S. inflation has shown a modest increase, underlying price pressures have remained somewhat subdued. The steady growth of core CPI supports the notion that inflation is not currently a major concern. As a result, the Federal Reserve might refrain from raising interest rates in September.
Inflation Shows Signs of Improvement
The latest data reveals a decline in core inflation, with a three-month annualized rate of 3.1%. This is the lowest reading since March 2021, just before inflation surged.
According to Michael Pugliese, a senior economist at Wells Fargo, there are positive developments in the inflation story despite ongoing challenges. He stated, "Through the noise, I see an inflation story that is certainly not solved, but it's improving."
The annual rate of inflation has been influenced by the happenings in June and July of 2022, serving as the basis for comparison. Economists predict that the rate of inflation may not slow significantly for the rest of the year and could potentially accelerate into early 2024 due to base effects.
Federal Reserve officials have taken measures to combat inflation by raising interest rates to the highest level seen in 22 years, aiming to cool the economy. While there are some encouraging signs of easing price pressures, the economy has surprised experts with its resilience. Fed Chair Jerome Powell has emphasized the importance of further softening in the labor market, including slower wage growth.
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