Shoppers get a slight reprieve
Much of the savings were found in travel costs: Hotels, rental cars, gas. Health care got pricier.
Falling prices for gas, airline tickets and clothes gave Americans a little bit of relief last month, though overall inflation is still running at close to its highest level in four decades.
Consumer prices jumped 8.5% in July compared with a year earlier, the government said Wednesday, down from a 9.1% year-over-year increase in June. On a monthly basis, prices were unchanged from June to July, the first time that has happened after 25 months of increases.
But the reprieve offered no certainty that prices would stay on the decline. Inflation has slowed in the recent past only to re-accelerate in subsequent months. And even if price increases continue to weaken, they are a long way from the Fed's 2% 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 it were to fall to 4% — less than half its current level — Pugliese suggested that the Federal Reserve would need to keep raising interest rates or at least keep them high.
Much of the relief last month was felt by travelers: Hotel room costs fell 2.7% from June to July, airfares nearly 8% and rental car prices a whopping 9.5%. Those price drops followed steep increases in the past year after COVID-19 cases eased and travel rebounded. Airfares are still nearly 30% higher than they were a year ago.
Gas prices dropped from $5 a gallon, on average, in mid-June to $4.20 by the end of last month, and were just $4.01 on Wednesday, according to AAA. Oil prices have also fallen, and cheaper gas will likely pull down inflation this month as well, economists said.
Last month's declines in travelrelated prices helped lower core inflation, a measure that excludes the volatile food and energy categories and provides a clearer picture of underlying price trends. Core prices rose just 0.3% from June, the smallest month-to-month increase since March. Compared with a year ago, core inflation amounted to 5.9% 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.
Biden highlighted the flat monthly inflation figure.
“I just want to say a number: zero,” he told reporters Wednesday. “Today we received news that our economy had zero percent inflation in the month of July.”
Americans are still absorbing bigger price increases than they have in decades. Grocery prices jumped 1.1% in July and are 13% higher than a year ago, the largest yearover-year increase since 1979. Bread prices leaped 2.8% last month, the most in more than two years. Rental and medical care costs rose, though slightly less than in previous months.
A strong job market and healthy wage increases have encouraged more Americans to move out on their own, reducing the number of available apartments and pushing up rental costs. Wall Street purchases of homes and trailer parks have also lifted monthly payments.
Average paychecks are rising faster than they have in decades, but not fast enough to keep up with inflation. As a result, some retirees have felt the need in recent months to return to the workforce.