CPI report: Inflation slowed in July amid lower gas prices



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July inflation climbed 8.5 percent over the past year, easing slightly thanks to falling gas and energy prices, and offering fresh hope to families and businesses that inflation may start to simmer down after months of gains.

In one of the most encouraging signs in more than a year, inflation in July was also flat from the month before, as a major drop-off in gasoline prices helped offset increases in food and shelter. The latest figures from the Bureau of Labor Statistics marked the lowest month-to-month inflation reading since May 2020.

“These kind of swings should be a reminder of how far our economy is right now from some semblance of normal,” said Claudia Sahm, founder of SAHM Consulting and a former Federal Reserve economist. “We should take a deep breath today but not do a victory dance.”

The upbeat inflation report could help Democrats in Washington, who are on the verge of passing a major climate and health-care spending bill, called the Inflation Reduction Act. The legislative deal comes after months of President Biden struggling to score economic wins as prices surged and pushed consumer sentiment to dismal lows. The July inflation report also comes just days after an unusually stellar jobs report, suggesting jobs are readily available for workers nationwide.

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“While the price of some things go up, went up last month, the price of other things went down by the same amount. The result: zero inflation last month,” Biden said during a White House event Wednesday. “When you couple that with last week’s booming jobs report of 528,000 jobs created last month, and 3.5 percent unemployment, it underscores the kind of economy we’ve been building.”

June’s inflation report was bleak, notching a new pandemic peak of 9.1 percent over the year before, as prices at the pump averaged above $5 per gallon. But by July, families felt more relief in their gas and energy bills. The gasoline index fell 7.7 percent in July, and the energy index fell 4.6 percent over the month.

Grocery and housing costs continue to strain peoples’ budgets — and will also need to see months of steady declines for overall inflation to near more normal levels. The food index continued to creep up, rising 1.1 percent over the month. Bread was up 2.8 percent over the month, and chicken 1.4 percent. Canned vegetables were up 1.5 percent.

Rent was also up 0.7 percent over the month, as increased housing costs are brewing into a bigger financial challenge for tenants nationwide. All told, the shelter index rose 5.7 percent over the last year, accounting for about 40 percent of the total increase in all items, discounting food and energy.

Still, there were bright spots in the report, many of which were tied to the fall in energy prices. Natural gas fell 3.6 percent. Airfares also fell at a sharp 7.8 percent, and prices for used cars dipped slightly. The apparel index also fell 0.1 percent after rising for the previous two months.

While some economists and policymakers hold back from drawing too much from one month of data, Jared Bernstein, a member of the White House’s Council of Economic Advisers, said American families got a bit of a respite in July, despite ongoing uncertainty. Last month, real average hourly earnings increased 0.5 percent from June.

“It’s no ‘mission accomplished,’ but some much-needed breathing room,” Bernstein told The Washington Post. “When it comes to energy, the president’s release of barrels from the Strategic Reserve are one of the factors playing a role in that now-persistent decline.”

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The latest inflation data underscores the challenge for policymakers racing to control inflation. The Federal Reserve is moving swiftly to slow the economy through an aggressive series of interest rate hikes, which make a whole host of lending — from mortgage rates to auto loans and borrowing for businesses — more expensive, curbing demand. But if the Fed moves too aggressively, it risks jerking the economy into a recession or causing widespread job losses.

There is also the fraught reality that getting a real-time read on the economy has been a huge challenge. Gas and energy prices are already considered some of the more unpredictable commodities. The pandemic also makes it difficult to compare a peak travel season — with soaring airfares and hotel costs that accompany pent-up demand — to previous years.

“There’s positive news here, but not of a kind that should fundamentally alter anyone’s view,” said Larry Summers, the former Democratic treasury secretary who has long warned about the risks of high inflation. “Any surprising, good news here is largely from volatile, hard to measure and hard to seasonally adjust components, like hotels and airlines.”

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So far, the Fed’s moves to cool demand are showing up in the housing market. A run-up in mortgage rates has pushed more buyers out of the market, leading to slowing home sales and easing price surges in some parts of the country. The tech sector also reported fresh waves of layoffs and hiring freezes, raising questions about whether the job market as a whole was teetering and if a recession was barreling closer.

But those fears were quelled last week, when the unemployment rate ticked down to its pre-pandemic low of 3.5 percent. For many businesses, economists and policymakers, the takeaway was that the labor market can stay strong, and even keep growing, as the Fed continues its rate hikes.

Mike Ryan is newly looking for a job after several years of being a stay-at-home dad. He and his husband, Joe Ryan, need the extra income: They go through gas quickly shuttling kids around rural Charles County, Md. Their costs for propane — which they use for cooking, heat and hot water — were $1,500 more expensive than they budgeted. The family watches YouTube videos to make fixes around the house, and they’ve put off the repairs they can’t do themselves, such as removing trees vulnerable to storms, until they can afford it.

Joe Ryan said the couple is already struggling to keep up with the cost of living. Now their biggest fear is falling into debt.

“Whatever debt we take on, we’re stuck with it. We have to stay within our means,” he said. “That’s a big concern. You just feel trapped, like there’s nowhere to go from here.”

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Controlling inflation is the Fed’s job. But rising prices have been an enormous economic and political challenge for the Biden administration and congressional Democrats. Democrats secured a major legislative win this week, with the Senate passing the Inflation Reduction Act to combat climate change, lower health-care costs, raise taxes on some billion-dollar corporations and reduce the federal deficit.

Still, inflation is the main economic issue for both parties going into the midterms this year. The GOP has hammered Democrats for their sprawling stimulus efforts that juiced demand for goods and services, keeping consumer spending flowing throughout the economy.

Gas and fuel prices became a particularly fraught issue earlier this summer, especially since they can be one of the more tangible ways people feel inflation. At Cleveland Express Trucking, the falling price of diesel in July was a welcome change.

Company president John Lamb said diesel peaked at $5.79 per gallon June 17 but has since fallen to about $3.90. He’s been able to lower the fuel surcharge passed on to customers. And he hopes that if energy prices keep falling, every rung of the transportation and trucking industry will get a little more breathing room.

“It takes a while for things to work through the system, but the trend is moving in the right direction,” Lamb said. “Barring any unforeseen geopolitical risks, I think it’s going to stay low and maybe go even lower.”



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