The annual inflation rate in the US decreased to 8.5% in July from an over 40-year high of 9.1% hit in June, the Labor Statistics Bureau revealed in its report on Wednesday (Aug.10). The figure was slightly cooler than the 8.7% expected by analysts surveyed by Dow Jones. Month on month, the Consumer Price Index (CPI) was unchanged compared to June.
After stripping out food and energy costs – which are highly volatile – core inflation was steady at 5.9% on an annual basis, beating expectations of 6.1%, and raising hopes that inflation has finally peaked in the world’s largest economy. On a monthly basis, the figure grew 0.3% in July. The Federal Reserve will weigh the report, along with other key economic data, ahead of its September meeting, where it is slated to hike interest rates again.
July’s figure is still high and it is too early for the US central bank to “declare victory” over curbing inflation, according to the President of the Federal Reserve Bank of San Francisco Mary Daly. “There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal,” she told the Financial Times in an interview, published on Thursday (Aug. 11).
Daly also underlined that although the Fed has a lot more to do in order to bring inflation down to its desired levels, she doesn’t “want to do it so reactively that we find ourselves spoiling the labour market,” saying that a 75 basis point rate hike might not be “optimal policy” for the September meeting.
Earlier this week, the Senate narrowly passed the $739bn Inflation Reduction Act. The bill now heads to the House where it’s expected to pass, and then likely on to President Joe Biden’s desk for signing.
Although the bill has “inflation reduction” right there in the title, its policies are unlikely to put a lid on rising prices in the near future.
According to a new report by Moody’s Investors Service, the Inflation Reduction Act will likely have medium- to long-term economic benefits by stimulating productivity and investment, but is unlikely to lower currently high inflation rates,
“If it spurs productivity-enhancing investment, the legislation could both support demand and increase supply efficiency over the medium- to long-term. However, these measures will not lower currently high inflation rates” says Claire Li, a Moody’s Vice President of Credit Strategy and Research.