July inflation climbed 8.5 percent over the past year, easing slightly thanks to falling gas and energy prices and raising new hopes that inflation will continue to simmer down.
Inflation eased in July from a year ago, as energy prices fell off summer peaks
“These kind of swings should be a reminder of how far our economy is right now from some semblance of normal,” said Claudia Sahm, founder of Sahm Consulting and former Federal Reserve economist. “We should take a deep breath today, but not do a victory dance.”
June’s inflation report was bleak, notching a new pandemic peak of 9.1 percent over the year before, as prices at the pump averaged above $5 per gallon. But by July, families felt more relief in their gas and energy bills. The gasoline index fell 7.7 percent in July, and the energy index fell 4.6 percent over the month. Airfares also fell at a sharp 7.8 percent, and prices for used cars also dipped slightly.
Policymakers within the Biden administration and Federal Reserve routinely hold back from drawing too much from one month of data. Jared Bernstein, a member of the White House’s Council of Economic Advisers, said that despite the ongoing uncertainty, American families got a bit of a respite in July. Last month, real average hourly earnings increased 0.5 percent from June. The job market also grew gangbusters.
“It’s no ‘mission accomplished,’ but some much-needed breathing room,” Bernstein told The Post. “When it comes to energy, the president’s release of barrels from the Strategic Reserve are one of the factors playing a role in that now persistent decline.”
Grocery and housing costs continue to strain peoples’ budgets — and will also need to see months of steady declines for overall inflation to get closer to more normal levels. The food index continued to creep up, rising 1.1 percent over the month. Bread was up 2.8 percent over the month, and chicken 1.4 percent. Canned vegetables were up 1.5 percent.
Rent was also up 0.7 percent over the month, as housing boils over into an economic crisis for tenants nationwide. All told, shelter index rose 5.7 percent over the last year, accounting for about 40 percent of the total increase in all items, discounting food and energy.
The latest inflation data underscores the challenge for policymakers racing to control inflation. The Federal Reserve is moving swiftly to slow the economy through an aggressive series of interest rate hikes, which slow demand by making a whole host of lending — from mortgage rates to auto loans and borrowing for businesses — more expensive. But if the Fed moves too aggressively, it risks jerking the economy into a recession or causing widespread job losses.
So far, the Fed’s moves to cool demand are showing up in the housing market. A run-up in mortgage rates has pushed more buyers out of the market, leading to slowing home sales and easing price surges in some parts of the country. The tech sector also reported fresh waves of layoffs and hiring freezes, raising questions about whether the job market as a whole was teetering and if a recession was barreling closer.
But those fears were quickly quelled last week, when the latest jobs report showed that the United States added 528,000 jobs in June and that the unemployment rate ticked down to its pre-pandemic low of 3.5 percent. For many businesses, economists and policymakers, the takeaway was that the labor market can stay strong, and even keep growing, as the Fed continues its rate hikes.
“While the price of some things go up, went up last month, the price of other things went down by the same amount. The result zero inflation last month,” President Biden said during a White House event on Wednesday. “When you couple that with last week’s booming jobs report of 528,000 jobs created last month, and 3.5 percent unemployment, it underscores the kind of economy we’ve been building.”
Mike Ryan is newly looking for a job after several years of being a stay-at-home dad. He and his husband, Joe Ryan, need the extra income: They go through gas quickly shuttling kids around rural Charles County, Md. Their costs for propane — which they use for cooking, heat and hot water — were $1,500 more expensive than they budgeted. The family watches YouTube videos to make fixes around the house, and they’ve put off the repairs can’t do themselves, like removing trees vulnerable to storms, until they can afford it.
Joe Ryan said the couple is already struggling to keep up with the cost of living. Now their biggest fear is falling into debt.
“Whatever debt we take on, we’re stuck with it. We have to stay within our means,” Joe Ryan said. “That’s a big concern. You just feel trapped, like there’s nowhere to go from here.”
Controlling inflation is the Fed’s job. But rising prices have been an enormous economic and political challenge for the Biden administration and congressional Democrats. Democrats secured a major legislative win this week, with the Senate passing the Inflation Reduction Act to combat climate change, lower health-care costs, raise taxes on some billion-dollar corporations and reduce the federal deficit.
Still, inflation is the main economic issue for both parties going into the midterms this year. The GOP has hammered Democrats for their sprawling stimulus efforts that juiced demand for goods and services, keeping consumer spending flowing throughout the economy.
Gas and fuel prices became a particularly fraught issue earlier this summer, especially since they can be one of the more tangible ways people feel inflation. At Cleveland Express Trucking, the falling price of diesel in July was a welcome change.
Company president John Lamb said diesel peaked at $5.79 per gallon on June 17, but has since fallen to about $3.90. He’s been able to lower the fuel surcharge passed on to customers. And he hopes that if energy prices keep falling, every rung of the transportation and trucking industry will get a little more breathing room.
“It takes a while for things to work through the system, but the trend is moving in the right direction,” Lamb said. “Barring any unforeseen geopolitical risks, I think it’s going to stay low and maybe go even lower.”
Source: WP
