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Inflation drops sharply as gas prices fall in July

Inflation data released on Wednesday showed inflation slowing in July, easing the strain on household budgets. The Federal Reserve should fight inflation with a series of higher borrowing costs, theoretically slowing the economy. Reduce demand and lower prices.

Inflation is still rising, but has eased from the near-historical pace reached in June, giving policy makers and consumers hope that inflation has peaked.

The Consumer Price Index (CPI) rose 8.5% year-on-year in July, down from 9.1% in June, according to the Bureau of Labor Statistics.

The consumer price index rose 1.3% on a month-to-month basis in July, unchanged from the gains seen in June, according to the bureau.

Inflation data has arrived while other indicators have given mixed signals for the economy in recent weeks.

According to AAA,According to AAA, more than 50 consecutive days of declines in the national average price of gasoline, which constitutes an important part of the consumer price index, have contributed to the slowdown in inflation. This is one reason..

Meanwhile, a government report on Friday said employment in July was more than double what economists expected, and his Ignoring the Fed's efforts and blaming recession fears.

Strong job gains last month -- 528,000 jobs added and the unemployment rate dropping to 3.5% -- weighed on rising wages that could put upward pressure on consumer prices. arose with it.

PHOTO: Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, D.C., July 27, 2022.

Federal Reserve Chairman Jerome Powell announced in July that Washington, D.C. Speech at a press conference in

Elisabeth Franz/Reuters, Files

Wages rise is consistent with a multi-month pattern. According todata released by the federal government, a close measure of US wages called unit labor cost rose 9.5% in the second quarter of this year. Tuesday.

In the face of high inflation, policymakers fear what is called a price-wage spiral. In this spiral, rising prices lead workers to demand higher prices so they can buy goods, which in turn pushes prices up, creating a self-perpetuating cycle of runaway inflation.

The US Federal Reserve (Fed) has tried to avoid a price and wage spiral with a series of hikes in borrowing costs, says Maurice Obst, an economics professor at the University of California, Berkeley. Feld told his ABC News. In the last two months of meetings, the central bank raised its benchmark interest rate by 0.75%. A dramatic increase took place in 1994.

The Federal Reserve will have to go a long way," Obstfeld said.

However, some data suggest that inflation fears have abated significantly.

A survey released by the New York Federal Reserve on Monday found that consumers expected inflation to slow.

The individual who responded to the July survey expects inflation to hover at 6.2% next year and 3.2% over the next three years, both significantly below the indicated inflation expectations. said to be declining to By consumer in the previous month.