WASHINGTON: US consumer prices rose little in July as higher rents were partly offset by dropping prices of commodities like motor vehicles and furnishings, which could lead the Federal Reserve to not raise interest rates next month.
On Thursday, the US Labour Department reported that inflation pressures fell further last month. Core inflation, excluding food and energy, was the lowest in over two years.
After a year of worrying about a recession, moderate inflation and a cooling labour market gave economists hope that the US central bank might create a “soft landing” for the economy.
“Significant progress on the inflation front has been made, a persistent trend of disinflation is evident,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The central bank should stop fighting inflation and wait and see.”
Last month’s CPI climbed 0.2%, matching June’s. With rental expenses up 0.4%, shelter accounted for over 90% of the CPI increase.
Food costs rose 0.2%. After being stable in June, grocery prices rose 0.3%. Egg, beef, dairy, and produce costs increased. After peaking at 13.5% in August 2022, grocery shop prices have slowed, rising 3.6% in July.
While, Restaurant costs rose 0.2%, returning to pre-pandemic levels. Energy costs rose 0.1%, including petrol. The August inflation figure may include late July petrol price increases.
The 12-month CPI rose 3.2% through July. In June, the year-over-year gain was 3.0%, the lowest since March 2021.
Moreover, The annual CPI rate rose for the first time in 13 months after prices fell in July after a spike that had raised inflation to a 40-year high.
Consumer prices fell from 9.1% in June 2022. Since June 2020, the CPI has climbed at a 1.9% annualised rate, down from 2.7%. The Fed targets 2% inflation.
While, Reuters polled economists predicted a 0.2% monthly and 3.3% annual CPI increase.
“Consumers are seeing broad-based relief on prices as the economy operates in a lower gear and a small margin of slack opens in the labour market,” said Bill Adams, chief economist at Comerica Bank in Dallas.
Rents remain expensive.
July’s CPI excluding food and energy rose 0.2%, matching June’s. After a 0.1% reduction in June, core goods prices fell 0.3%, lowering underlying inflation. Used vehicles and trucks declined 1.3%, causing goods deflation. New automobile and furniture costs fell.
Services inflation continued to rise 0.3% for a third month. Rents increased services. After rising 0.4% in June, owners’ equivalent rent (OER) climbed 0.5%.
As more apartments are built, independent measures show rental costs falling. CPI rent measures lag independent readings by months. After 8.1% in March, rents rose 7.7% in July.
“Housing disinflation will pick up momentum in the coming months,” said Lydia Boussour, senior economist at EY-Parthenon in New York.
Education, recreation, and auto insurance also rose. Airline fares fell 8.1% for the fourth consecutive month. Hotels and motels were cheaper last month.
Core CPI rose 4.7% from July to July. After a 4.8% rise in June, that was the weakest year-over-year increase since October 2021. After rising 4.1% in June, core PCE rose 3.1% annualised in the preceding three months, the slowest pace since September 2021.
The economy is still struggling. Though the labour market is stagnating, conditions remain tight, keeping salaries high and sustaining good economic growth. Economists predicted that strikes, heat waves, and the Russia-Ukraine conflict might raise inflation.
Inflation cooling boosts household purchasing power, supporting demand. July real hourly wages rose 0.3%.
“This report does not yet guarantee that we have seen the last rate increase,” said William Blair macro analyst Richard de Chazal in London.
Moreover, The Labour Department reported Thursday that initial applications for state unemployment benefits rose 21,000 to a seasonally adjusted 248,000 for the week ended Aug. 5, beating experts’ projections of 230,000.
