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News for September 28, 2022

Americans Slightly Relived With Lower Prices, Despite Inflation

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Americans experienced some relief last month as gas prices, airplane tickets, and clothes fell. Although, overall inflation is still running nearly to its highest level in four decades.

Consumer prices jumped 8.5% in July compared with a year earlier. The government said Wednesday was down from a 9.1% year-over-year increase in June. 

Monthly, prices were unchanged from June to July, the first time that has happened after 25 months of increases, according to a report.

The report offered welcome news for congressional Democrats and President Joe Biden heading into the midterm elections. Biden highlighted the flat monthly inflation figure.

“I just want to say a number: zero,” he told reporters. “Today, we received news that our economy had zero percent inflation in the month of July.”

Republicans, who have made inflation a top campaign issue, stressed that prices are still painfully high. Texas GOP Rep. Kevin Brady highlighted grocery costs and said Americans “continue to struggle under President Biden’s cruel economy, with shrinking paychecks, a shrinking economy, and a shrinking workforce.”

The reprieve offered no certainty that prices would stay on the decline. Inflation has slowed in the recent past, only to re-accelerate in subsequent months. And even if price increases continue to weaken, they are a long way from the Fed’s 2% annual target.

“There’s good reason to think inflation will continue to slow,” said Michael Pugliese, an economist at Wells Fargo. “What I think gets lost in that discussion is, slow by how much?”

Even if it were to fall to 4% — less than half its current level — Pugliese suggested that the Federal Reserve would need to keep raising interest rates or at least keep them high.

Much of the relief last month was felt by travelers: Hotel room costs fell 2.7% from June to July, airfares nearly 8%, and rental car prices a whopping 9.5%. Those price drops followed steep increases in the past year after COVID-19 cases eased and travel rebounded. Airfares are still nearly 30% higher than they were a year ago.

On average, gas prices dropped from $5 a gallon in mid-June to $4.20 by the end of last month and were just $4.01 on Wednesday, according to AAA. Economists said that oil prices have also fallen, and cheaper gas will likely pull down inflation this month.

Last month’s declines in travel-related prices helped lower core inflation, a measure that excludes the volatile food and energy categories and provides a clearer picture of underlying price trends. 

Core prices rose just 0.3% from June, the smallest month-to-month increase since March. Compared with a year ago, core inflation amounted to 5.9% in July, the same year-over-year increase as in June.

All told, the July figures raised hope that inflation may have peaked after more than a year of relentless increases that have strained household finances, soured Americans on the economy, led the Federal Reserve to raise borrowing rates aggressively, and diminished President Joe Biden’s public approval ratings.

Americans are still absorbing bigger price increases than they have in decades. Grocery prices jumped 1.1% in July and are 13% higher than a year ago, the largest year-over-year increase since 1979. Bread prices leaped 2.8% last month, the most in more than two years. Rental and medical care costs rose slightly less than in previous months.

A strong job market and healthy wage increases have encouraged more Americans to move out independently, reducing the number of available apartments and pushing up rental costs. Wall Street purchases of homes and trailer parks have also lifted monthly payments.

Average paychecks are rising faster than in decades, but not fast enough to keep up with inflation. As a result, some retirees have felt the need to return to the workforce in recent months.

Among them is Charla Bulich, who lives in San Leandro, California. For the past six months, Bulich, 73, has worked a few hours a week caring for an elderly woman because her Social Security and food stamps don’t cover her rising costs.

“I go over my budget all the time — that’s why I had to go get a job,” Bulich said. “I wouldn’t even think about buying hamburger meat or a steak or something like that.”

She worries that she will lose her food stamps in the coming months because of her extra income.

Michael Altfest, director of community engagement at the Alameda County Community Food Bank in Oakland, said his organization now provides about 4.5 million pounds of food a month, up from below 4 million in January. 

The group has also budgeted for a 66% increase in fuel costs. That’s mostly because of higher gas prices but also because it’s now using more trucks to keep up with the demand for food.

Altfest’s own rent recently jumped 14%, forcing him to recalibrate his budget.

“All these costs are going up, all at once,” he said. “The people here were stretched already.”

Last month’s modest slowdown in inflation might enable the Fed to slow the pace of its increases in short-term rates when it meets in late September — a possibility that sent stock prices jumping. 

How quickly and far the Fed raises borrowing costs significantly affects the economy: Sharper hikes tend to reduce consumer and business borrowing and spending and make a recession more likely.

If the Fed doesn’t have to raise rates as high to restrain prices, it has a better chance of engineering an elusive “soft landing,” whereby growth slows enough to curb high inflation but not so much as to cause a recession.

Still, Fed Chair Jerome Powell has emphasized that the central bank needs to see a series of lower readings on core inflation before it will pause rate hikes. The Fed has boosted its short-term rate by 2.25 percentage points in the past four meetings, the fastest series of increases since the early 1980s.

Biden has pointed to declining gas prices as a sign that his policies, including big releases from the nation’s strategic oil reserve, are helping lessen the higher costs that have hurt household finances, particularly for lower-income Americans and Black and Hispanic households.

There are other signs that inflation may fade in the coming months. Americans’ expectations for future inflation have fallen, according to a survey by the Federal Reserve Bank of New York, likely reflecting the drop in gas prices that is highly visible to most consumers.

Inflation expectations can be self-fulfilling: If people believe inflation will stay high or worsen, they’re likely to take steps — such as demanding higher pay — that can send prices higher in a self-perpetuating cycle.

Companies then often raise prices to offset higher their higher labor costs. But the New York Fed survey found that Americans foresee lower inflation one, three, and five years from now than they did a month ago.

Supply chain snarls are also loosening, with fewer ships moored off Southern California ports and shipping costs declining. Prices for commodities like corn, wheat, and copper have fallen steeply.

Stubborn inflation isn’t just a U.S. phenomenon. Prices have jumped in the United Kingdom, Europe, and less developed nations such as Argentina.

In the U.K., inflation soared 9.4% in June from a year earlier, a four-decade high. The 19 countries that use the euro currency reached 8.9% in June compared with a year earlier, the highest since record-keeping for the euro began.

This article originally appeared on CTV News.

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Hi, you might find this article from Modern Campground interesting: Americans Slightly Relived With Lower Prices, Despite Inflation! This is the link: https://moderncampground.com/usa/americans-slightly-relieved-with-lower-prices-despite-inflation/