U.S. inflation slows to 3-year low. Can the Fed cut rates now? – National

Year-over-year inflation reached its lowest level in more than three years in July, the latest sign that the worst price spike in four decades is fading and setting up the Federal Reserve for an interest rate cut in September.

Wednesday’s report from the Labor Department showed that consumer prices rose just 0.2 per cent from June to July after dropping slightly the previous month for the first time in four years. Measured from a year earlier, prices rose 2.9 per cent, down from three per cent in June. It was the mildest year-over-year inflation figure since March 2021.

The government said nearly all the increase in the monthly inflation figure reflected higher rental prices and other housing costs, a trend that, according to real-time data, is easing.

Inflation has taken a central role in the presidential election, with former President Donald Trump blaming the Biden administration’s energy policies for the price increases. Vice President Kamala Harris on Saturday said she would soon unveil new proposals to “bring down costs and also strengthen the economy overall.”

Story continues below advertisement


Click to play video: 'U.S. Fed says it won’t cut rates until it has ‘greater confidence’ on inflation'


U.S. Fed says it won’t cut rates until it has ‘greater confidence’ on inflation


In July, grocery prices rose just 0.1 per cent and are a scant 1.1 per cent higher than they were a year earlier, a much slower pace of growth than in previous years. Yet many Americans are still struggling with food prices, which remain 21% above where they were three years ago, though average wages have also sharply increased since then.

Gas prices were unchanged from June to July and have actually fallen 2.2 per cent in the past year. Clothing prices also dropped last month; they’re nearly unchanged from 12 months earlier. New and used car prices fell in July, too. Used car prices, which had skyrocketed during the pandemic, have tumbled nearly 11 per cent in the past year.


Financial news and insights
delivered to your email every Saturday.

Get expert insights, Q&A on markets, housing, inflation, and personal finance information delivered to you every Saturday.

Get weekly money news

Get expert insights, Q&A on markets, housing, inflation, and personal finance information delivered to you every Saturday.

By providing your email address, you have read and agree to Global News’ Terms and Conditions and Privacy Policy.

Some food prices, including for meat, fish and eggs, are increasing faster than before the pandemic. Dairy and fruit and vegetable prices, though, fell in July.

Story continues below advertisement

For nearly a year cooling inflation has provided gradual relief to America’s consumers, who were stung by the price surges that erupted three years ago, particularly for food, gas, rent and other necessities. Inflation peaked two years ago at 9.1 per cent, the highest level in four decades.

Excluding volatile food and energy costs, so-called core prices climbed a mild 0.2 per cent from June to July, after a 0.1 per cent increase the previous month. And compared with a year earlier, core inflation slowed from 3.3 per cent to 3.2 per cent — the lowest level since April 2021. Core prices are closely watched by economists because they typically provide a better read of where inflation is headed.

Fed Chair Jerome Powell has said he is seeking additional evidence of slowing inflation before the Fed begins cutting its key interest rate. Economists widely expect the Fed’s first rate cut to occur in mid-September.

When the central bank lowers its benchmark rate, over time it tends to reduce the cost of borrowing for consumers and businesses. Mortgage rates have already declined in anticipation of the Fed’s first rate reduction.

At a news conference last month, Powell said that cooler inflation data this spring had strengthened the Fed’s confidence that price increases are falling back to a two per cent annual pace. Another inflation report will be issued next month before the Fed’s Sept. 17-18 meeting, with economists expecting that report to also show that price increases remained mostly tame.

Story continues below advertisement

Inflation has eased substantially in the past two years as global supply chains have been repaired, a spate of apartment construction in many large cities has cooled rental costs and higher interest rates have slowed auto sales, forcing dealers to offer better deals to potential car buyers.

Consumers, particularly lower-income ones, are also becoming more price-sensitive, forgoing high-priced items or shifting to cheaper alternatives. This has forced many companies to rein in price hikes or even offer lower prices.


Click to play video: 'Inflation shrank to 2.7% in June'


Inflation shrank to 2.7% in June


Prices are still rising sharply for some services, including auto insurance and health care. Auto insurance costs have shot up as the value of new and used vehicles has soared compared with three years ago. Economists, though, expect those costs to eventually grow more slowly.

As inflation continues to decline, the Fed is paying increasingly close attention to the job market. The central bank’s goals, as defined by Congress, are to keep prices stable and support maximum employment.

Story continues below advertisement

This month, the government reported that hiring slowed much more than expected in July and that the unemployment rate rose for a fourth straight month, though to a still-low 4.3 per cent. The figures roiled financial markets and led many economists to boost their forecasts for interest rate cuts this year. Most analysts now expect at least three quarter-point rate cuts at the Fed’s September, November and December meetings. The Fed’s benchmark rate is at a 23-year high of 5.3 per cent.

Still, the rise in the unemployment rate has reflected mainly an influx of job-seekers, especially new immigrants, who haven’t immediately found work and so have been classified as unemployed. That is a much more positive reason for a higher unemployment rate than if it came from a jump in layoffs. Measures of job cuts remain low.

On Thursday, the government will release its latest data on retail sales, which are expected to show that consumers increased their spending modestly in July. As long as shoppers are willing to spend, businesses are likely to hold onto their workers and may even add staff.


Click to play video: 'Markets wild ride and the Bank of Canada'


Markets wild ride and the Bank of Canada


&copy 2024 The Canadian Press



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *