After peaking at a four-decade high in June, the U.S. inflation rate stood at 8.5 percent in July, easing by six tenths of a point and offering a brief pause to the world’s largest economy as it tries to keep price gains in check.
New data from the Bureau of Labor Statistics released on Wednesday show the annual rate ticking down as consumer prices stabilized in July, helped in large part by a drop in gasoline costs. The energy pullback moved the overall index lower as gasoline and natural gas prices fell, even as electricity rose modestly.
The slower inflation pace provides a bit of relief for an economy that many analysts describe as flirting with a technical recession after two consecutive quarters of shrinking GDP. Still, the Biden administration argues that the country is not in a recession, pointing to a resilient labor market with unemployment around 3.5 percent.
In the report, energy prices were down 4.6 percent for the month, with gasoline and natural gas both sliding, while electricity costs rose by about 1.6 percent. Over the past year, energy costs have surged about 44 percent, and gasoline has risen roughly 33 percent.
Amid the energy price retreat, food prices continued higher, rising 1.1 percent in the month and marking the seventh straight month of gains beyond 0.9 percent. On an annual basis, food costs rose about 10.9 percent, with groceries 13.1 percent more expensive than a year earlier and dining out 7.6 percent higher.
Core inflation, which strips out food and energy, posted an annual rate of 5.9 percent, ticking up 0.3 percent in the month. Although the month brought a small deceleration in overall prices, transportation costs still ended the period with a notable 9.2 percent year-over-year increase. The rise in new vehicle prices persisted, climbing 0.6 percent for the month and 10.4 percent on an annual basis.
President Joe Biden commented on the price situation in a social media post, noting that one third of core inflation stemmed from elevated vehicle prices driven by semiconductor shortages and expressing optimism that the new microchip law would help restore price balance. The legislation aims to encourage domestic production of chips and reduce reliance on imports, a policy the administration hopes will lower consumer costs, especially for goods tied to manufacturing.
As the midterm election season approaches, inflation remains a central concern for the administration. The Federal Reserve lifted interest rates again in late July, with a 2.25 percentage-point move following a 2.5 percent increase in a prior step, reflecting ongoing efforts to curb price growth.
Analysts from the Atlantic Council cautioned that inflation is slowing more because of falling gasoline prices than due to policy alone, and they warned that supply chain frictions and tight labor markets could keep price gains from falling rapidly. Still, the overall trend points to cooling inflation, which could boost consumer confidence even as price pressures linger in several categories.