US inflation eased slightly in July, official data showed on Wednesday, easing pressure on the Federal Reserve to raise interest rates sharply and giving President Joe Biden a much-needed boost just months before the crucial midterm elections.
As energy costs have fallen in recent weeks, the CPI fell to an annual rate of 8.5 percent last month, the Labor Department reported.
Fueled by aggressive consumer spending on pandemic savings, global supply chain crunch, domestic worker shortages and Russia’s war on Ukraine, the CPI was up 9.1 percent year on year in June, the highest in 40 years.
But the July consumer price index was flat from the previous month, well below a forecast rise, while the consumer price index excluding volatile food and energy goods rose just 0.3 percent – the lowest in four months – the figures showed.
Consumer prices have continued to rise in the United States, squeezing family budgets and, in turn, Biden’s popularity.
Opponents accuse the president of accelerating inflation with his gargantuan $1.9 trillion coronavirus aid package, which he launched in March last year shortly after taking office.
And Republicans renewed their criticism of Biden’s economic policies, warning that passing his massive climate and health bill, dubbed the Inflation Reduction Act, in the Senate on Sunday would do the opposite of its stated purpose.
But the devil is in the details.
Experts fear that the slowdown in inflation linked to the drop in gasoline prices could be outweighed by rising rental and house prices.
“The bigger problem is what happens to home ownership costs and rents,” wrote Diane Swonk, chief economist at KPMG, on Twitter.
Washington now faces the question of whether it will be able to bring inflation down on a sustained basis without plunging the world’s largest economy into recession after two quarters of economic contraction.
To curb inflation, the Fed has already hiked interest rates four times to a range of 2.25 to 2.5 percent, including hikes of 75 basis points at each of the last two meetings.
Fears that Wednesday’s readings would come in above forecasts and urge the central bank to announce another jumbo rate hike weighed on stocks in Asia and Europe, with most markets in the regions plummeting into the red.
On the plus side, the US job market remains dynamic and in July the unemployment rate fell to pre-pandemic levels of 3.5 percent.
But there are still almost two vacancies for every available worker, pushing up wages and contributing to inflation.
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