Lower prices offer Americans slight reprieve from inflation
WASHINGTON — 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.
The report offered welcome news for congressional Democrats and President Joe Biden heading into the midterm elections.
The reprieve offered no certainty that prices would stay on the decline. Inflation has slowed in the recent past only to reaccelerate 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%. Airfares, though, 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. Cheaper gas will likely pull down inflation this month as well, economists said.
Last month’s declines in travel-related 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.