Hints of Cooling Prices, But Fed Promises Firm Inflation Policy

WASHINGTON — Inflation eased last month as energy prices plummeted, raising hopes that the rising cost of everything from gasoline to food might have peaked.

According to a Friday report from the Commerce Department closely watched by the Federal Reserve, consumer prices rose 6.3% in July from a year earlier, following a 6.8% annual increase in June. biggest jump since 1982. Energy prices made the difference in July, falling last month after rising in June.

But on the same day, at the Federal Reserve’s annual economic symposium in Jackson Hole, Chairman Jerome Powell delivered a grim message: The Fed is likely to impose more major rate hikes in the coming months and is resolutely focused on taming inflation.

There was hope that the Fed would signal a moderation in rate hikes if inflation showed further signs of easing.

So-called core inflation, which excludes volatile food and energy prices, rose 4.6% last month from a year earlier, after rising 4.8% in June. The drop – along with a cut in the Labor Department’s consumer price index last month – suggests that inflationary pressures could ease.

On a monthly basis, consumer prices even fell by 0.1% from June to July; Core inflation rose 0.1%, the Commerce Department reported.

And the Fed seems poised to make an effort to ensure that prices move in the right direction.

Inflation began soaring in the spring of 2021 as the economy recovered surprisingly quickly from the brief but devastating coronavirus recession a year earlier. Increasing customer orders flooded factories, ports and freight yards, leading to delays, shortages and higher prices. Inflation is a global problem, especially as the Russian invasion of Ukraine has pushed up global food and energy prices.

On Friday, regulators in the UK said residents will see their annual household energy bills rise by 80%.

In the United States, the Commerce Department’s Personal Consumer Expenditure Index (PCE) is less well-known than the Labor Department’s Consumer Price Index (CPI).

But the Fed prefers the PCE index as a measure of inflationary pressures, in part because the Commerce index seeks to measure how consumers adapt to rising prices by, for example, replacing cheaper store brands with more expensive brand names.

There has been evidence in recent months alone that this is happening at various levels.

CPI shows higher inflation than PCE; For example, last month the CPI ran at an annual pace of 8.5% after hitting a high of 9.1% in four decades in June. One reason: The Labor Department index gives more weight to rents, which have risen this year.

The Commerce Department also reported Friday that Americans’ after-tax personal income rose 0.3% from June to July, after adjusting for inflation; it fell in June. Consumer spending rose 0.2% last month, taking into account higher prices.

Rising prices have become a political threat to the current administration and President Joe Biden was quick to point to the latest data that could show inflation is losing its grip.

“The American people are starting to get some relief from the high prices, and the Inflation Reduction Act that I signed last month will also help lower prices,” Biden said Friday. “Gas prices have fallen every day this summer – the fastest fall in more than a decade. And today’s report showed that personal income had also risen last month.”

The Fed has been slow to react to rising inflation, thinking it was the temporary result of supply chain bottlenecks. But as prices continued to rise, the US central bank moved aggressively, raising its benchmark rate four times since March.

On Friday, Powell warned more explicitly than he has in the past that the Fed’s continued tightening of credit will hurt many households and businesses as higher interest rates further slow the economy and potentially lead to job losses.

“These are the unfortunate costs of curbing inflation,” Powell said. “But if price stability is not restored, that would mean a lot more pain.”

Price pressures may already be easing as the US economy slows. Gross domestic product — the broadest measure of economic output — shrank in the first half of 2020 as borrowing costs rose. The housing market has been hit particularly hard. And the backlogs in the supply chain are starting to clear.

“Inflation appears to have peaked in mid-2022 and should slow year-on-year through the remainder of this year and into 2023,” said Gus Faucher, chief economist at PNC.

Nick Zawitz, who runs Tangle Creations, a South San Francisco company that makes Fidget Toys, among other things, said shipping costs have fallen and raw material prices have fallen slightly. Meanwhile, the company’s revenue has increased by 45% in the past year. “Things are lapping on,” Zawitz said.

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AP White House Correspondent Zeke Miller contributed to this report from Washington, DC