Image Source: The Jakarta Post
At the end of July, the pace of price increases in the US slowed down, although they still rose quickly. In a report from the Labor Department, the annual US inflation rate—the rate at which prices rise—was 8.5% in July, down from a high of 9.1% in June.
Aside from electricity, prices for many other things, like food and housing, kept rising. As a result, the economy has been severely damaged by the increasing costs, which have put many households in a difficult situation.
Indicators of consumer and business morale have been negatively impacted by concerns about the rising costs, which are increasing more quickly than they have since the early 1980s, even while job growth is still solid.
The price of food has increased 13.1% in the US over the past year, which is the highest yearly increase since 1979. In addition, coffee expenses increased in July by 3.5% just since June, which contributed to the increase.
Housing, healthcare, and leisure costs increased from June, as well, although these increases were partially offset by drops in the prices of used automobiles, travel, and apparel.
When compared to June, when gas prices were at a record high of more than $5 per gallon on average, they dropped by 7.7%.
Analysts discuss US inflation
According to Capital Economics’ senior US economist, Paul Ashworth, the US Central Bank is still seeking a meaningful fall in inflation, not just passing. However, he conceded that it was a positive beginning, and price reductions are anticipated over the coming few months.
Since last year, prices in the US have been rising quickly due to various factors, including increased consumer demand, fueled by Covid-19 government checks that encouraged spending.
Additionally, shortages of goods, especially necessities like wheat and oil, have been caused by the war in Ukraine, pandemic-related shutdowns in China, and other problems.
In an attempt to keep prices stable, the US central bank has been increasing interest rates since March.
One strategy to attempt and manage inflation is to raise interest rates because it makes borrowing more expensive and should encourage individuals to borrow less and spend less, which would reduce demand and raise prices.
The bank runs the danger of sending the economy into a protracted slump or recession, as higher interest rates negatively impact economic activity. For example, the US Commerce Department said last month that the economy contracted in the second consecutive quarter, from April to June.
Oil prices have decreased recently, resulting in lower fuel prices for consumers, in part due to expectations of a downturn in the US and overseas.
Senior economist Silvia Dall’Angelo at Federated Hermes said that when the bank’s rate increases took effect and persistently high prices forced consumers to cut back on their spending, demand would continue to decline in the months to come.
“This should accelerate the rate at which inflation declines throughout the course of next year, together with stabilization in energy prices and a gradual easing of global supply limitations,” the expert claimed.
She continued, however, by saying that despite the fact that the Fed will take some solace from today’s inflation report, the battle against high inflation is far from done.