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

Digital Payments Lead the Way Globally: Key Insights from Worldpay Study

According to a recent Worldpay study, digital payments are rapidly becoming the preferred choice worldwide. The research highlights significant shifts in consumer behavior and payment preferences, driven by technological advancements and the growing acceptance of cashless transactions. Key findings from the study reveal that digital payments now account for a substantial portion of global transactions. Mobile wallets, contactless payments, and online banking are gaining traction, reflecting consumers' desire for convenience and speed. This trend is especially prominent in regions like Asia Pacific, where mobile payment adoption is leading the charge. The study also emphasizes the importance of security in fostering consumer trust in digital payments. As fraud concerns continue to rise, businesses must prioritize robust security measures to protect customer information and enhance the payment experience. Moreover, the transition to digital payments is not just about c...

Embracing ARMs And Battling Members’ Misconceptions

With adjustable-rate mortgages back in fashion, credit unions are educating members about the ins and outs of these products, dispelling misunderstandings along the way. With housing stock low, home prices high, and interest rates showing no signs of coming down, many credit unions are turning to adjustable-rate mortgages to help would-be borrowers find a home. ARM loans gained a bad reputation after the 2008 housing crisis and the Great Recession, but credit union leaders insist that with the right education and a clear understanding of how the product works, adjustable-rate mortgages can be an ideal solution for would-be homeowners. The Big Picture53% of those who don’t own a home believe homeownership is out of reach, according to a study from Northwestern Mutual . 58% of millennials feel this way, but roughly half of baby boomers and Gen X share the sentiment. According to Federal Reserve data, the average price of a home topped $510,000 at the end of 2024. That’s 32% higher than f...

Jim Nussle To Retire From America’s Credit Unions

  WASHINGTON—America’s Credit Unions President and CEO Jim Nussle plans to retire from the trade association, ACU announced. ACU said Nussle did not specify an exact date for his retirement but rather expressed his desire to provide the ACU board the “full flexibility” to conduct a search for a CEO over the next several months on a timeline of their choosing, and to ensure his ongoing efforts to champion the organization’s advocacy agenda.   Jim Nussle “Serving credit unions is a deep personal privilege. After a long career in advocacy from both sides of the policy making table, leading CUNA and the honor of helping to create and lead America’s Credit Unions, it is soon time for me to pursue new interests in retirement. My announcement today is intended to provide the board the time to conduct a thorough national search to find the next leader for the Association,” Nussle said.  “My full and ongoing focus will be on our intensive credit union advocacy efforts to prot...

Havoc.’ ‘Debacle.’ Analysts See Rough Road Ahead for Autos With Tariffs

WASHINGTON–What’s known: should President Trump’s tariffs remain in place, new and used vehicle prices are going to get even higher. The unknown: Will members stop buying cars, move from new to used, or given how many buy cars according to payment, move to less-expensive models? The tariffs also may create challenges for credit unions that serve some autoworkers. All of those questions and more remain much in flux with analysts predicting  auto prices could rise by $5,000 to $10,000 per vehicle and wreak havoc on the market as the result of 25% import tariffs on vehicles and auto parts.   As the CU Daily reports separately, however, Black Book believes automakers will spread out the incremental cost of tariffed vehicles across their entire showroom to retain relative vehicle transaction prices. Still, the company expects tariffs to push the average transaction price on vehicles to more than $50,000. ‘A Debacle’ “The tariffs are a debacle of epic proportions for the a...

Zelle Discontinues Standalone App, Shifts Users to Bank and Credit Union Platforms

SCOTTSDALE, Ariz.—The standalone Zelle app is no longer available for sending or receiving money. Users are now encouraged to enroll through a participating bank or credit union’s app to continue using the peer-to-peer payment service, PYMNTS reported. Zelle had announced in an Oct. 31  blog post  that it would make this change, and it completed the move as of Tuesday (April 1), according to a frequently asked questions  page  on its website PYMNTS said/ “More than 2,200 banks and credit unions across the U.S. now offer Zelle through their mobile app or online banking site,” the company said on the FAQ page. “As a result of this growth, in October of 2024, we announced that we are removing the ability for users to send or receive money using the Zelle app starting April 1, 2025.” PYMNTS noted that the page advised users of the Zelle app to visit a “find your bank” page on its website to see if their bank or credit union offers Zelle; to...