WASHINGTON (AP) — Inflation eased last month as energy prices fell, raising hopes that a surge in price increases may have peaked.
According to the Commerce Department’s Friday report, closely watched by the Federal Reserve, consumer prices rose 6.3% in July from a year earlier, following a 6.8% annual increase in June, the largest jumped since 1982. Energy prices made the difference in July: They fell last month after rising in June.
So-called core inflation, which excludes volatile food and energy prices, rose 4.6% last month from a year earlier, after rising 4.8% in June. The drop – along with a cut in the Labor Department’s consumer price index last month – suggests that inflationary pressures could ease.
On a monthly basis, consumer prices even fell by 0.1% from June to July; Core inflation rose 0.1%, the Commerce Department reported.
Inflation began to soar in the spring of 2021 as the economy recovered surprisingly quickly from the brief but devastating coronavirus recession a year earlier. Increasing customer orders flooded factories, ports and freight yards, leading to delays, shortages and higher prices. Inflation is a global problem, especially as the Russian invasion of Ukraine has pushed up global food and energy prices.
In the United States, the Commerce Department’s Personal Consumer Expenditure Index (PCE) is less well-known than the Labor Department’s Consumer Price Index (CPI).
But the Fed prefers the PCE index as a measure of inflationary pressures, in part because the Commerce index seeks to measure how consumers adapt to rising prices by, for example, replacing cheaper store brands with more expensive brand names.
CPI shows higher inflation than PCE; For example, last month the CPI ran at an annual pace of 8.5% after hitting a high of 9.1% in four decades in June. One reason: The Labor Department index gives more weight to rents, which have risen this year.
The Commerce Department also reported Friday that Americans’ after-tax personal income rose 0.3% from June to July, after adjusting for inflation; it fell in June. Consumer spending rose 0.2% last month, taking into account higher prices.
The Fed has been slow to react to rising inflation, thinking it was the temporary result of supply chain bottlenecks. But as prices continued to rise, the Federal Reserve moved aggressively, raising its benchmark rate four times since March.
