Cooler-than-expected July inflation data fueled hopes that consumer prices peaked earlier this summer after a year of relentless increases that have crushed Americans, created a political firestorm for President Biden and forced the Federal Reserve to raise interest rates by the fastest rate in recent decades. The consumer price index rose 8.5 percent in July from a year earlier, a steeper drop from the 9.1 percent recorded in June than economists had expected. On a monthly basis, the index was flat as declines in the cost of oil, gasoline and airfare offset increases in food and rent. Excluding the more volatile food and gasoline measures, prices rose 5.9% in July, in line with the previous month. While the slowdown is likely a welcome respite for the Fed as it tries to wrestle inflation under control, experts have warned that inflation remains painfully high and may be slow to return to pre-pandemic levels of around 2 percent. INFLATION IS STILL ELIMINATING AVERAGE AMERICANS’ WAGES “We’re not out of the woods for long,” said Peter Earle, a researcher at the nonprofit think tank the American Institute for Economic Research. “We have a long way to go and a lot can happen before we get back to the 1.5% to 2.5% annual inflation range that Americans are used to.” Whether inflation has truly peaked remains deeply uncertain, particularly as COVID-19 and Russia’s war in Ukraine continue to disrupt the global economy. Economists had previously predicted that the inflation wave had peaked, only to be proven wrong next month. However, the expectation is that the torrid pace of price increases will slow in the coming months, although it may be a long descent back to ‘normal’. JULY INFLATION DEVASTATION: WHERE ARE THE RISING PRICES HITTING AMERICANS HARDEST? “Within a month or two, there will be clearer evidence that inflation has peaked, but also evidence that the decline is painfully slow,” said Seema Shah, head of global strategy at Principal Global Investors. “Households will unfortunately continue to feel the severe pressure of increased price pressures on their budgets, while the persistence of wage growth will weigh on business margins.” A customer shops at a supermarket in Millbrae, California, Aug. 10, 2022. (Li Jianguo/Xinhua via Getty Images/Getty Images) Runaway inflation has created severe financial pressures on most US households, forcing them to pay more for everyday necessities such as food and rent. The burden falls disproportionately on low-income Americans whose already inflated wages are heavily affected by price fluctuations. Although American workers have seen strong wage gains in recent months, inflation has largely eroded them. Real average hourly earnings fell 0.5 percent in July from a month earlier, when they matched higher consumer prices, according to the Labor Department. On a year-over-year basis, real earnings fell 3% in July. “While the boost to the overall economic outlook is welcome, the easing of inflation will be hollow with many down-market consumers whose wages are falling in real terms, despite falling petrol prices alone adding about $400 million back to the balance sheets of households,” RSM said. chief economist Joe Brusuelas. Blueberries and cherries for sale at a farmers market in the Fort Greene neighborhood of Brooklyn, New York, July 16, 2022. (Allison Hess/Bloomberg via Getty Images/Getty Images) Despite the monthly drop in energy prices in July, Americans are still paying significantly more for gas (32.9%) than they did a year ago. Households also face rising food prices, which rose 13.1% last year, the most significant increase since 1979, and increasingly steep rent, which is rising 6.3%. In fact, the average American pays an extra $717 a month because of it the hottest inflation in decadesaccording to an analysis by the Republican Joint Economic Committee. “While prices were unchanged from June to July 2022, prices rose 13.3% from January 2021 to July 2022, costing the average American household $717 in July 2022 alone,” the analysis says . Even if prices stopped rising entirely, the inflation already occurring between August 2021 and July 2022 would cost the average American household an additional $8,607. CLICK HERE TO READ MORE ABOUT FOX BUSINESS President Biden, who has been on the defensive for months about surging prices, hailed Wednesday’s cooler-than-expected report as evidence that inflation “may be starting to moderate.” But Biden acknowledged that the battle against inflation may not be over yet. “We could face additional headwinds in the coming months,” he said. “Our work is far from over.”
