প্রকাশ: 10/08/2022
Americans may finally be catching a break from relentlessly
surging prices — if just a slight one — even as inflation is expected to remain
painfully high for months.
Thanks largely to falling gas prices, the government’s
inflation report for July, to be released Wednesday morning, is expected to
show that prices jumped 8.7% from a year earlier — still a sizzling pace but a
slowdown from the 9.1% year-over-year figure in June, which was the highest in
four decades.
The forecast by economists, if it proves correct, would
raise hopes that inflation might have peaked and that the run of punishingly
higher prices is beginning to ease slightly. There have been other hopeful signs,
too, that the pace of inflation may be moderating.
At the same time, an array of other economic developments
are threatening to keep intensifying inflation pressures. The pace of hiring is
robust and average wages are up sharply. And even as gas prices fall, inflation
in services such as health care, rents and restaurant meals is accelerating.
Price changes in services tend to be sticky and don’t ease as quickly as they
do for gas, food or other goods. Those trends suggest that overall inflation
may not drop significantly anytime soon.
President Joe Biden has already pointed to falling gas
prices as a sign that his policies — such as releases of oil from the nation’s
strategic reserve — are helping combat the higher costs that have hammered
household budgets, particularly for lower-income families.
Yet Republicans will push ongoing high inflation as a top
campaign issue in this fall’s elections, with polls showing that high prices
have driven Biden’s approval ratings down sharply.
On Friday, the House is poised to give final congressional
approval to a revived tax-and-climate package pushed by Biden and Democratic
lawmakers. The bill, which among other things aims to ease pharmaceutical
prices by letting the government negotiate Medicare’s drug costs, is expected
to cut the federal budget deficit by $300 billion over a decade.
Yet economists say the measure, which its proponents have
titled the Inflation Reduction Act, will have only a minimal effect on
inflation over the next several years, though it could could slow price
increases a bit more later this decade.
Economists have forecast that Wednesday’s inflation report
will show that consumer prices rose 0.2% from June to July, according to
FactSet. That would mark a steep drop from the 1.3% jump from May to June.
But excluding the volatile food and energy categories,
so-called core inflation likely stayed high. Economists project that core
prices rose 0.5% from in July, still a sharp rise, though down from the 0.7%
jump in June. Such an increase would leave core prices 6.1% higher than a year
ago, up from a 5.9% year-over year increase in June.
If overall inflation did ease in July, it will largely
reflect a 16% plunge in prices at the gas pump from their peak in mid-June,
when gas hit a national average of $5 a gallon. The average price fell to about
$4.20 by the end of July and was just $4.03 by Tuesday. The continuing drop
means that lower gas prices will likely pull inflation down further in August.
Other items may have also helped lower price gains in July:
Food costs, though they likely kept rising, probably did so at a slower pace
than in June. Prices for used cars, clothing and rental cars may have fallen,
too.
Federal Reserve Chair Jerome Powell has said the Fed needs
to see a series of declining monthly core inflation readings before it would consider
pausing its interest rate increases. Though the Fed more closely tracks a
different inflation measure, it also monitors the figures in Wednesday’s
report, known as the consumer price index.
The Fed has raised its benchmark short-term rate at its past
four rate-setting meetings, including a three-quarter point hike in both June
and July — the first increases that large since 1994. A blockbuster jobs report
for July that the government issued Friday — with 528,000 jobs added, rising
wages and an unemployment rate that matched a half-century low of 3.5% —
solidified expectations that the Fed will announce yet another
three-quarter-point hike when it next meets in September.
Financial markets are betting that the Fed will raise rates
several more times this year, to a range of 3.5% to 3.75%, but will ultimately
have to cut rates by next summer because traders expect the higher rates to
cause a recession.
Some trends do point to lower future inflation. The supply
chain snags that have elevated prices for cars, furniture, appliances and other
goods are easing.
The number of ships waiting to be unloaded at the Los
Angeles/Long Beach port has fallen for six straight months, according to Oxford
Economics. Shipping costs have generally leveled off or declined, including for
trucking and rail services, Oxford said, though they remain high.
And a drop in Americans’ expectations for future inflation
may also keep higher prices from becoming entrenched. Such expectations can be
self-fulfilling: If people believe inflation will stay high or worsen, they are
likely to take steps — such as demanding higher pay — that can then send prices
higher in a self-perpetuating cycle. Companies often raise prices to offset
higher their higher labor costs.
But a survey by the Federal Reserve Bank of New York,
released Monday, showed that Americans now expect lower inflation in the next
few years than they did a month ago. Yung-Yu Ma, chief investment strategist at
BMO Wealth Management, said lower inflation expectations may allow the Fed to
react less aggressively to reports, such as last month’s burst of hiring, that
suggest the economy is still strong and that inflation could remain high.
“It’s a modestly good sign,” Ma said of the inflation
expectations data. “It gives them a little bit of room to not take a more
aggressive approach.”
– AP/UNB
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