Inflation Finally Starts To Cool

Finally, U.S. consumers have a reason to cheer: Inflation is starting to cool off as the Consumer Price Index (CPI) rose by 8.5% in July since last year, slowing down from a red hot 9.1% in June, according to the Bureau of Labor Statistics (BLS). While the annual rate of inflation remains close to 40-year highs, the jump in prices was also lower than economists had originally forecast.

Why It Matters

Inflation has been hammering consumers, as they have been forced to shell out more money on necessities like groceries and clothing as the prices of most goods and services continue to rise. 

And those persistently high levels of inflation have put pressure on the Federal Reserve to bring down prices through a series of interest rate hikes. 

While higher interest rates should help break the inflation fever, they also make loans more expensive, which may dampen your plans to buy a house, a car, or with credit card debt. Over one-third of U.S. adults say they are reconsidering major milestones such as buying a house or buying a car because of inflation, a new survey by The Balance found.

Going Deeper

When more volatile prices of gasoline and food were excluded, the “core” CPI rose 0.3% in July from the month prior. That’s lower than the 0.5% economists expected. Gas prices dropped 7.7% last month, bringing relief to drivers who have been getting squeezed at the pump. Food prices continued to rise, jumping 1.1% last month over June. 

It’s unclear whether inflation will continue to slow down as the central bank remains committed in its fight against rising prices. Policymakers at the Federal Reserve have continued to remain hawkish (meaning, willing to raise interest rates) and have made statements signaling they would do what it takes to bring inflation down, in line with their goal of 2%—so we still have a long way to go.

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