New Delhi: As energy costs fell last month, inflation decreased, providing hope that a spike in price hikes may have crested.
Consumer prices increased 6.3% from a year earlier in July after marking the largest annual increase since 1982 in June, according to a Commerce Department data released on Friday and carefully followed by the Federal Reserve. Energy costs were the deciding factor in July since they decreased after rising in June.
After increasing 4.8% in June, so-called core inflation, which includes volatile food and energy prices, increased 4.6% last month. The decrease shows that inflationary pressures may be beginning to ease, as does the decrease in the consumer price index reported by the Labor Department last month.
Consumer prices actually decreased by 0.1% on a monthly basis between June and July, while core inflation increased by 0.1%, according to data from the Commerce Department.
The economy recovered from the brief but severe coronavirus recession a year earlier with astonishing speed, and inflation began to rise quickly in the spring of 2021. Demand from customers was outpacing supply, overtaxing warehouses, ports, and freight yards, causing delays, shortages, and price increases. Global food and energy costs have increased as a result of the Russian invasion of Ukraine, contributing to the problem of inflation.
Contrary to the Labour Department’s consumer pricing index, the Commerce Department’s personal consumption expenditures (PCE) index is less well recognised in the United States (CPI).
The Commerce index aims to quantify how consumers react to rising prices by, for example, swapping less expensive store goods for more expensive name brands, but the Fed prefers the PCE index as an indicator of inflationary pressures.
CPI has consistently shown higher inflation than PCE; for example, last month, CPI was growing at an annual rate of 8.5% after reaching a four-decade high of 9.1% in June. One explanation is that the Labour Department’s index accords greater weight to rentals, which have increased significantly this year.
The Commerce Department also revealed on Friday that after accounting for inflation, Americans’ after-tax personal income increased 0.3% from June to July after falling in June. After accounting for increasing costs, consumer expenditure increased by 0.2% last month.
Because they believed that supply chain bottlenecks were to blame for the transitory rise in inflation, the Fed was sluggish to act. However, the U.S. central bank acted hastily and increased its benchmark interest rate four times since March as prices continued to rise.
