After 12 consecutive months of declines, inflation in the United States has risen, largely due to higher housing costs. However, when excluding the volatile prices of food and energy, core inflation saw a minimal increase, matching the smallest monthly rise in almost two years.
According to government reports released on Thursday, consumer prices increased by 3.2% from the previous year. This uptick is from a 3% annual rise in June, the lowest rate in over two years. While this figure is still far below last year’s peak of 9.1%, it remains above the Federal Reserve’s 2% target.
Core inflation figures, which exclude the impact of food and energy prices, are of particular interest to the Federal Reserve, economists, and investors. The data from June to July indicated a subdued increase of 0.2%.
The latest price data will play a crucial role in the Fed’s decision-making process regarding interest rates. The Federal Reserve has been working to curb inflation by raising its benchmark rate, which has been hiked 11 times since March 2022, reaching a 22-year high.
Rising energy prices have rekindled inflationary pressures within the economy. Gasoline prices have surged by nearly 30 cents per gallon over the past month, with the national average now standing at $3.83 a gallon.
Economists note that the easy gains in combating inflation have likely already been made. Gasoline prices, for instance, have come down significantly from their peak of over $5 per gallon in June of the previous year.
A significant portion of the inflation surge observed since 2021 was due to supply chain disruptions caused by the rapid economic recovery from the pandemic recession in 2020. However, these supply chain issues have eased, reducing upward pressure on goods prices.
The Fed now faces the challenge of dealing with persistent inflationary pressures in service businesses, where wages make up a substantial portion of costs. Many service companies have had to raise wages due to worker shortages, and these wage increases have typically been passed on to consumers in the form of higher prices.
While the Fed has faced challenges in controlling inflation, some economists predict that inflation will continue to trend lower. Used car prices, which had surged due to the pandemic, have started to drop, and rents, which had skyrocketed, are cooling as well.
Despite concerns about rising labor costs, wage growth has slowed down, and rents are expected to decline further. Fed officials will closely monitor various economic indicators before making any further decisions on interest rates.
The recent data could play a crucial role in the Fed’s upcoming meeting in September. While a majority of traders expect no rate hike next month, the Fed’s actions will depend on a combination of factors, including inflation trends, employment numbers, and overall economic stability.
COMMENTS