Inflation in the United States edged up in July after 12 straight months of declines. But excluding volatile food and energy costs, so-called core inflation matched the smallest monthly rise in nearly two years.
Thursday’s inflation data will be among the key metrics the Federal Reserve will consider in deciding whether to continue raising interest rates.
Squeezing out the last bit of excess inflation and reducing it to the Federal Reserve’s 2% target rate is expected to be a much harder and slower grind.
Despite the influx of workers, average hourly wages rose 0.4% from June and 4.4% from a year earlier—numbers that were hotter than expected and are likely to worry the Federal Reserve.
Consumer prices rose in June at their slowest pace in more than two years and wage growth cooled last quarter.
Many analysts believe margins hit bottom in the second quarter, and they’re forecasting a recovery in the second half. Others are less optimistic.
Tumbling inflation and sturdy hiring have raised hopes the Fed just might pull off a so-called soft landing—slowing the economy just enough to tame inflation without tipping the United States into recession.
The government’s producer price index—which measures inflation before it reaches consumers—rose just 0.1% last month from June 2022, the smallest such increase since August 2020.
A year after inflation soared to the highest level in four decades, price increases are returning closer to normal levels.
The expected decline in overall inflation over the past 12 months would bring the figure much closer to the Fed’s 2% target and reflect the progress the central bank has made in slowing price acceleration.
Last month’s progress in easing overall inflation was tempered by an elevated reading of “core” prices, a category that excludes volatile food and energy costs.
Speaking on Capitol Hill for a second day, Federal Reserve Chair Jerome Powell said returning U.S. inflation to 2% is crucial to support the long-term health of the U.S. economy.
The two days of hearings before Congress will likely focus on the question that consumed the central bank last week: How far and how fast will the Fed raise its key interest rate from here?
Chair Jerome Powell offered a nuanced view Wednesday of how the Federal Reserve intends to address its core challenge at a time when inflation is both way below its peak but still well above the central bank’s 2% target.
The Fed’s move to leave its benchmark rate at about 5.1%, its highest level in 16 years, suggests that it believes the much higher borrowing rates it’s engineered have made some progress in taming inflation.
On a month-to-month basis, overall producer prices have now dropped three of the last four months.
Housing costs continue to be a major driver of overall inflation. Rent rose 0.5 percent in May over the month before, only a minor improvement from a 0.6 percent increase in April. Rental costs are still up 8.7 percent over last year.
An emerging pullback should be welcome news for the Federal Reserve, which has been taking aggressive steps for more than a year to slow the economy enough to bring down inflation.
Leading Federal Reserve officials are sending out stronger signals that they will forego an increase at the central bank’s next meeting, though they indicate hikes could resume later this year.
The resilience of the American labor market continues to complicate the Federal Reserve’s efforts to fight inflation.
