An inflation indicator that the Federal Reserve constantly monitors stayed low last month, supporting indications that price increases are slowing and increasing the chance that the Fed will maintain interest rates at its upcoming meeting in late September.
According to the Commerce Department’s report released on Thursday, prices increased little for the third consecutive month in July, rising just 0.2% from June.
Prices increased 3.3% year over year in July, up from a 3% annual increase in June.
Though it is still more than the Fed’s 2% inflation objective, the year-over-year figure is far lower than the 7% peak it achieved a year ago.
The most recent data comes in the wake of other recent figures that indicate the labor market and economy may be slowing just enough to reduce inflationary pressures.
For instance, the number of job postings that were advertised fell in July, and fewer Americans are leaving their employment in search of better chances.
Both factors lessen the demand on businesses to increase compensation in order to attract and retain employees, a move that frequently leads to inflation when businesses raise prices to make up for their increased labor costs.
When volatile costs for food and energy are excluded, “core” inflation increased by the same 0.2% from June to July as it did from May to June. Core prices increased 4.2% over the previous year, up from 4.1% the month prior.
The significantly smaller price hikes from a year ago contributed to the increase in the core figures year over year.
Policymakers at the Fed keep a close eye on core prices as a warning indicator of potential future inflation. The personal consumption expenditures price index, a different inflation indicator from the more well-known consumer price index, was released on Thursday.
The government announced earlier this month that the CPI increased 3.2% from a year earlier in July, down from a peak of 9.1% in June 2022.
In a well-publicized address last week at a meeting of central bankers in Jackson Hole, Wyoming, Fed Chair Jerome Powell emphasized the complex processes involving the economy and inflation.
He emphasized that the Fed would “proceed carefully” in determining its next course of action.
Two months of solid statistics, according to Powell, “are just the start of what it will take to create confidence that inflation is declining sustainably and moving toward our goal.” The length of time that these reduced levels will last is still unknown.
According to research from the Bank of America Institute, which monitors customer behavior through its credit and debit cards, spending in July increased around the Fourth of July holiday.
And the institute noted a rise in online spending in the middle of the month, perhaps as a result of Amazon’s “prime” shopping day. Spending on entertainment increased later in the month, likely as a result of the success of the “Barbie” and “Oppenheimer” film releases.
Major retailers, including Macy’s, Foot Locker, and Kohl’s, reported steep sales reductions in the spring and early summer, suggesting that these patterns may have diverted some consumers’ attention away from them.
Nevertheless, a lot of bargain merchants, such as Walmart, TJ Maxx, and Dollar Tree, reported rising sales.
That revealed that consumers with lower and moderate incomes are looking for deals and putting a greater emphasis on needs since they are feeling squeezed by inflation and rising borrowing prices. The July rate increase by the Fed, according to economists and Wall Street traders, may have been the final one for the year.
However, Powell cautioned that the Fed would maintain its benchmark rate at a high level until it was certain that inflation was under control in his address last week.
Additionally, the Fed chair warned that additional rate hikes might be necessary if the economy didn’t slow down in the upcoming months.