Skip to main content

Inflation Slows as Economy Cools, Offering a Reprieve, But for how Long?

The Consumer Price Index climbed 8.5 percent in July, a bigger slowdown than expected, but inflation may remain uncomfortably high for some time.

Inflation cooled in July as gas prices and airfares fell, a welcome reprieve for consumers and economic policymakers but not yet a conclusive sign that price increases are turning a corner.

The Consumer Price Index climbed 8.5 percent in the year through July, compared with 9.1 percent the prior month, a bigger slowdown than economists had projected. After stripping out food and fuel costs to get a sense of underlying price pressures, prices climbed by 5.9 percent through July, matching the previous reading.

  • On a monthly basis, the price index did not move at all in July. That’s because fuel prices, airfares, and used cars declined in price, offsetting increases in rent and food costs.

  • Core inflation was also slower than economists had expected on a monthly basis, climbing by 0.3 percent. In June, that figure was 0.7 percent.

  • Today’s report is probably welcome news at the White House and the Federal Reserve, both of which have been waiting for inflation to decelerate.

  • But it’s easy to overstate how much July’s slowdown matters. Inflation is still abnormally high. The decline is owed in large part to gas prices, and they can always jump again.

  • There are some real reasons to believe inflation will slow in the months ahead: Supply chain pressures, for instance, show signs of easing.

  • But there are also reasons to worry. Wage growth remains rapid. And housing costs, particularly rents, continue to climb, which could keep inflation high for some time.

While costs finally stopped increasing at an accelerating rate, they are still climbing at an unusually rapid clip, making everyday life expensive for consumers. And a big chunk of the pullback in July came from dropping gas prices, as the average cost of a gallon of fuel began to fall back toward $4 after peaking at $5 in June.

Fuel costs are notoriously volatile, and with Russia’s invasion of Ukraine injecting heightened geopolitical tensions, officials are unlikely to stake victory on a slowdown that could quickly reverse itself. That said, the report contained other good news: Airfares came down in price, which was expected, but so did the cost of apparel, hotel rooms used cars. The slowdown in core prices, which strip out volatile food and fuel costs to give a sense of the underlying trend, was more pronounced than economists had expected.

Despite all those positive developments, costs continue to climb rapidly across many goods and services. Rapidly rising rents are likely to particularly stick out to the Fed, because they make up a big chunk of overall inflation.

The big question on Wall Street is what the new data will mean for the Fed’s policy path ahead — and investors on Wednesday interpreted the fresh data as likely to allow the central bank to slow down its rapid rate increases.

The Fed raised interest rates by three-quarters of a percentage point in both June and July, and officials have signaled that another one of those abnormally large increases should be up for debate at their upcoming meeting on Sept. 20-21. But investors are betting that slower inflation and moderating inflation expectations could shore up support for a smaller move.

Still, Fed officials have warned against reacting too much to one data point.

“It can’t just be a one month. Oil prices went down in July; that’ll feed through to the July inflation report, but there’s a lot of risk that oil prices will go up in the fall,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said during a recent appearance. It would be a mistake to “cry victory too early.”

Comments

Popular posts from this blog

Why credit unions need to be formulating a strategy for crypto & digital...

“The future of money isn’t coming – it’s here, growing at $4 trillion and accelerating,”  DaLand CIO, Jon Ungerland said in a statement. “Their solution ensures the institutions that matter most to American communities don’t miss the transition.” https://www.dalandcuso.com/videos-podcasts __ ______________________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board

NCOFCU YouTube Video Minies

  https://www.youtube.com/playlist?list=PLT3lzRTXnHw4YHnT2TzILxP7Rfkjn0eT1  __ ______________________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board

Navigating Staff & Employee Compensation

The following videos will help you to navigate the complexities of salary and benefits for your credit union staff and employees. __ ______________________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board

Fed Gets Green Light for Interest Rate Cuts as Unemployment Rate Jumps to 4-Year High

The Federal Reserve is now seen as likely to   cut interest rates   multiple times before the end of the year, following another weak jobs report that showed unemployment jumping to a four-year high. The U.S. economy added just 22,000 jobs in August, less than economists had expected, the  Bureau of Labor Statistics  reported Friday. The unemployment rate rose to 4.3%, up slightly from 4.2% in July but hitting the highest level seen since October 2021, when the economy was still recovering from pandemic-driven layoffs. Although the new jobs report was troubling news for the economy, for prospective homebuyers with secure jobs it likely means further easing in  mortgage rates  in the days to come. Mortgage rates hinge primarily on the yields of  10-year Treasury notes , which plunged Friday to their lowest level since early April, when President  Donald Trump 's Liberation Day tariff announcement sparked panic in financial markets. It signals furth...

Open Banking Pushes Leading Credit Unions Ahead In Race For Member Loyalty

  https://youtu.be/pUIV8hwSDCE NEW YORK—Credit unions that embrace open banking aren’t just keeping pace with competitors—they’re pulling ahead, new data show. A new report finds that innovation in digital tools and personalized experiences is emerging as the decisive factor separating credit unions that win lasting member loyalty from those at risk of losing ground. “ The 2025 Credit Union Innovation Readiness Index: Closing Gaps, Winning Members ,” a June report produced in collaboration between  Velera  and PYMNTS Intelligence, underscores innovation as a defining factor for credit union success. iStock-Korakrich Suntornnites “Facing shifting expectations from both consumers and small to medium-sized businesses (SMBs) toward digital convenience and tailored experiences, credit unions must modernize not just to compete with traditional banks, but to remain relevant to their members. The report, based surveys of 500 credit union executives, 15,000 U.S. consumers, and nea...