Fed's preferred inflation gauge shows a modest rise in latest sign of slowing price increases
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A measure of inflation that is closely monitored by the Federal Reserve remained at a low level in the previous month, indicating that the rate of price increases is slowing down. This increases the probability that the Fed will keep interest rates steady during its upcoming meeting in late September.
On Thursday, the Commerce Department released a report indicating that prices experienced a slight 0.2% growth from June to July, marking the third consecutive modest increase. In comparison to the same period last year, prices saw a 3.3% rise in July, surpassing the previous year's 3% annual increase observed in June. However, it is important to note that the current year-over-year figure exhibits a significant decline from the peak of 7% reached a year ago, although it remains higher than the Federal Reserve's desired 2% inflation target.
The most recent information aligns with other recent studies that indicate a potential slowdown in both the economy and the job market, which could alleviate inflation concerns. For instance, the number of job vacancies advertised decreased significantly in July, and there has been a decline in the number of Americans leaving their current jobs in search of better prospects. These trends relieve the pressure on companies to increase wages in order to attract and retain employees. This is significant because when employers raise prices to compensate for their increased labor expenses, it often contributes to the continuation of inflation.
Not counting the prices of food and energy, the inflation rate for essential items increased by only 0.2% from June to July, which was the same increase as from May to June. In comparison to the previous year, the prices of essential items rose by 4.2%, slightly higher than the 4.1% increase in the previous month. This increase is partly due to the fact that there were smaller price increases during the same period last year. The policymakers at the Federal Reserve keep a close eye on these core prices as they provide insights into the likely direction of inflation.
The inflation measure released on Thursday, known as the personal consumption expenditures price index, is distinct from the more widely recognized consumer price index. In previous weeks, the authorities made known that the CPI experienced a 3.2% increase in July compared to the same time last year, marking a decline from its highest point of 9.1% in June 2022.
