US inflation slows from a 40-year peak but remains high

Washington: Falling prices for gas, airline tickets and clothes helped give Americans a slight break from the pain of high inflation last month, though overall price increases slowed only modestly from a four-decade high that was reached in June.

Consumer prices jumped 8.5 per cent in July compared with a year earlier, the government said Wednesday, down from a 9.1 per cent year-over-year increase in June. On a monthly basis, prices were unchanged from June to July, the smallest such rise in more than two years.

Much of the relief last month was felt by travelers: Hotel room costs fell 2.7 per cent from June to July, airfares nearly 8 per cent and rental car prices a whopping 9.5 per cent. Those prices declines followed steep increases in the past year after COVID-19 cases eased and travel rebounded. Airfares are still nearly 30 per cent higher than they were a year ago .

Last month's declines in travel-related prices helped lower so-called core inflation, a measure that excludes the volatile food and energy categories to provide a clearer picture of underlying inflation. Core prices rose just 0.3 per cent from June, the smallest month-to-month increase since March. And compared with a year ago, core inflation amounted to 5.9 per cent in July, the same year-over-year increase as in June.

All told, the July figures raised hope that inflation may have peaked after more than a year of relentless increases that have strained household finances, soured Americans on the economy, led the Federal Reserve to raise borrowing rates aggressively and diminished President Joe Biden's public approval ratings.

Still, core prices have slowed in the recent past only to re-accelerate in subsequent months. And even if inflation continues to weaken, it is a long way from the Fed's 2 per cent annual target.

There's good reason to think inflation will continue to slow, said Michael Pugliese, an economist at Wells Fargo. What I think gets lost in that discussion is, slow by how much?

Even if consumer inflation were to slow to 4 per cent less than half its current level Pugliese suggested that it would still likely cause the Fed to keep raising rates.

Americans are still absorbing bigger price increases than they have in decades. Grocery prices jumped 1.1 per cent in July and are 13 per cent higher than a year ago, the largest year-over-year increase since 1979. Bread prices leapt 2.8 per cent last month, the most in more than two years. Rental and medical care costs rose, though slightly less than in previous months.

Average paychecks are rising faster than they have in decades, but not fast enough to keep up with those rising costs. As a result, some people who had retired have felt the need in recent months to return to the workforce.

Among them is Charla Bulich, who lives in San Leandro, California. For the past six months Bulich, 73, has worked a few hours a week caring for an elderly woman because her Social Security and food stamps don't cover her rising costs.

I go over my budget all the time that's why I had to go get a job, Bulich said. I wouldn't even think about buying hamburger meat or a steak or something like that.

Now, she worries that she will lose her food stamps in the coming months because of her extra income.