Americans may finally be able to take a break from the relentless rise in prices – if only slightly – although inflation is expected to remain painfully high for months.
The government’s inflation report for July, due to be released Wednesday morning, is expected to show prices up 8.7 percent year-on-year, thanks largely to falling gas prices — still a buoyant pace but a slowdown from the 9, 1 percent year-on-year figure in June, the highest in four decades.
If the economists’ forecast proves correct, it would raise hopes that inflation may have peaked and the price series of penalties is easing somewhat. There were also other hopeful signs that the pace of inflation might be slowing.
At the same time, a number of other economic developments threaten to further increase inflationary pressures. Hiring rates are robust and average wages have risen sharply.
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And even if gas prices fall, inflation in services like health care, rent and restaurant meals will accelerate. Price changes in services tend to be persistent and don’t let up as quickly as they do in gas, food, or other commodities. These trends suggest that headline inflation may not fall significantly anytime soon.
President Joe Biden has already pointed to falling gas prices as a sign that his policies — like releasing oil from the country’s strategic reserve — are helping combat higher costs that are straining household budgets, especially for lower-income families to have.
Still, Republicans will push persistently high inflation as a key campaign issue in this fall’s election, with polls showing high prices have driven Biden’s approval ratings sharply lower.
On Friday, the House of Representatives is poised to give Congressional final approval of a revived tax and climate package being pushed by Biden and Democratic lawmakers. The law, which among other things aims to lower drug prices by letting the government negotiate Medicare drug costs, is expected to reduce the federal budget deficit by $300 billion over a decade.
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But economists say the measure, dubbed the Inflation Reduction Act by its proponents, will have minimal impact on inflation over the next few years, although it could slow price rises a bit more later in the decade.
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According to FactSet, economists have forecast Wednesday’s inflation report to show consumer prices rose 0.2 percent from June to July. That would represent a steep drop from the 1.3 percent jump from May to June.
But barring the volatile food and energy categories, so-called core inflation likely remained elevated. Economists are forecasting that core prices rose 0.5 percent from July, still a sharp rise albeit below the 0.7 percent jump in June. Such an increase would leave core prices 6.1 percent higher than a year ago, versus a 5.9 percent year-on-year increase in June.
If headline inflation eased in July, that will largely reflect a 16 percent fall at the pump from its peak in mid-June, when gas hit a national average of $5 a gallon. The median price fell to about $4.20 by the end of July and was down to just $4.03 on Tuesday. The ongoing decline means lower gas prices are likely to pull inflation further lower in August.
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Other factors may also have helped mitigate July’s gains: Food costs, while likely continuing to rise, are likely at a slower pace than in June. The prices for used cars, clothing and rental cars are also likely to have fallen.
Federal Reserve Chair Jerome Powell said the Fed needs to see a series of falling monthly core inflation readings before it considers suspending rate hikes. Though the Fed tracks another measure of inflation more closely, it also monitors numbers in Wednesday’s report known as the CPI.
The Fed has raised its short-term reference rate at its last four rate-setting meetings, including a three-quarter-point hike in June and July — the first that large hike since 1994. A blockbuster July jobs report the government released on Friday — at 528,000 job creation, rising wages and an unemployment rate at 3.5 percent, a half-century low — fueled expectations that the Fed would announce another three-quarter-point hike at its next September meeting.
Financial markets are betting that the Fed will hike rates several more times this year to a range of 3.5 to 3.75 percent, but will ultimately have to cut rates by next summer because traders assume that the higher rates Interest rates will trigger a recession.
Some trends point to lower future inflation. The supply chain problems that have led to increased prices for cars, furniture, household appliances and other goods are dissolving.
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The number of ships waiting to be unloaded in the Port of Los Angeles/Long Beach has fallen for six straight months, according to Oxford Economics. Shipping costs have generally leveled off or fallen, including for truck and rail services, Oxford said, although they remain high.
And a drop in Americans’ expectations of future inflation could also prevent higher prices from taking hold. Such expectations can be self-fulfilling: if people believe inflation will remain high or worsen, they are likely to take steps – like demanding higher wages – that can then push up prices in a self-perpetuating cycle . Companies often raise prices to offset their higher labor costs.
But a survey by the Federal Reserve Bank of New York released Monday showed that Americans now expect lower inflation over the next few years than they did a month ago. Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said lower inflation expectations could allow the Fed to react less aggressively to reports like last month’s hiring surge that suggest the economy is still strong and inflation is surging could stay high.
“This is a reasonably good sign,” Ma said of the inflation expectations data. “It gives them a bit of leeway not to be more aggressive.”
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https://globalnews.ca/news/9049705/us-inflation-data-gas-prices-analysis/ US inflation is likely to remain high despite falling gas prices. Here’s why – National