In July, inflation experienced a continued decline, reaching its lowest point in three years. The recent report from the Labor Department indicated that consumer prices only increased by 0.2% from June to July. Year-on-year, prices climbed 2.9% in July, a decrease from the 3% rise recorded in June.
This @WSJ chart effectively highlights why many individuals have not yet recognized the drop in the US inflation rate from over 9% two years ago to just under 3%. #economy #inflation #econtwitter pic.twitter.com/jucDpufqMF
— Mohamed A. El-Erian (@elerianm) August 16, 2024
This is the smallest annual increase since March 2021.
US Housing Starts fell to a 50-month low in July, dropping 16% compared to the previous year. This trend often signals a leading indicator for the economy, raising recessionary concerns. pic.twitter.com/DSszADuXwW
— Charlie Bilello (@charliebilello) August 16, 2024
The report suggests that the Federal Reserve might consider lowering interest rates by 25 basis points at its upcoming September meeting. “We’re making progress in the right direction regarding inflation and doing so with some momentum,” remarked Jared Bernstein, chair of the Council of Economic Advisers.
The bulk of the increase in July was driven by rising rental costs and housing prices, with shelter contributing nearly 90% to the monthly rise. Energy prices remained stable following reductions in prior months.
.@POTUS & @VP are making strides in combating inflation, bringing it down to the lowest point since the end of the pandemic.
This is encouraging news, yet more needs to be done—like reducing everyday living expenses, cutting unnecessary regulations, and addressing price gouging. https://t.co/sMvQuw0e0Q
— Rep. Salud Carbajal (@RepCarbajal) August 17, 2024
Inflation decline shows steady progress
Prices for used cars, healthcare, airfare, and clothing all saw a decline from June to July. Rubeela Farooqi, a leading economist in the U.S., mentioned that the inflation figures aligned with expectations, without any indications of a significant price collapse.
According to her, “Today’s report will strengthen confidence within the Fed that inflation is indeed moving steadily towards a target of 2%.” Farooqi expects the Fed to likely implement “a series of modest rate reductions,” instead of extreme actions. The Fed has previously raised interest rates to the highest level in 23 years to manage inflation while safeguarding economic stability.
Nonetheless, a weaker jobs report for July signals possible strain in the labor market caused by high rates. This increases the probability of the Federal Reserve lowering the benchmark rate in its next meeting. Although inflation has been a central issue, the unexpectedly soft jobs report from July has alarmed analysts about the risk of slowing job growth.
The Fed’s upcoming decisions will be critical for the U.S. economy.
