Clearing up the inflation front in the United States

Joe Biden at the White House on August 10, 2022 (AFP/Jim WATSON)

Joe Biden at the White House on August 10, 2022 (AFP/Jim WATSON)

Inflation slowed more-than-expected in the United States in July, reflecting a fall in the price of gasoline at the pump. While still very high, the announcement is a breath of fresh air for Joe Biden a few months before the crucial midterm election.

The US President welcomed “signs that inflation could gradually ease” from the White House.

Consumer prices rose 8.5% in July from a year earlier, according to the Consumer Price Index (CPI) released by the Labor Department on Wednesday.

That’s down from June’s 9.1% — a 40-year record — but also down from the 8.7% analysts were expecting.

But the number that surprised the most is the inflation over one month: 0.0%. Contrary to expectations, prices have not increased at all compared to June (versus a 1.3% increase last month).

“Today we learned that our economy had 0% inflation in July,” Joe Biden said.

“Our economy had zero percent inflation in July. ZERO PERCENT. There’s definitely still a lot to do, but we’re on the right track,” White House spokeswoman Emilie Simons said in a tweet.

This slowdown is to be welcomed, as rising prices have eroded household purchasing power over the past year and a half. And with it the popularity rating of the Democratic President.

His opponents accuse him of inflationary economic policies, particularly because of his generous stimulus package in March 2021, shortly after he entered the White House.

They reignited their criticism on Sunday when the Senate passed the Inflation Reduction Act on climate and health, which they accuse of generating unnecessary public spending.

– “Too high” –

A supermarket in Arlington, Virginia on June 10, 2022 ( AFP / SAUL LOEB )

A supermarket in Arlington, Virginia on June 10, 2022 ( AFP / SAUL LOEB )

Despite this slowdown, “prices remain too high,” Nuance Rubeela Farooqi, economist for HFE.

American motorists can certainly breathe a sigh of relief: Gasoline prices are down 7.7% compared to June, good news in a country where the vast majority of car journeys are made on board often gas-guzzling models. Within a year, however, they rose by 44%.

And the prices for hotel accommodation and plane tickets have also fallen.

But Americans continued to tighten their belts to find shelter and buy groceries after food prices experienced their sharpest rise in over a year since 1979 (+10.9%).

However, core inflation, which excludes energy and food prices, slowed to 0.3% over a month and 5.9% over a year, surprising analysts who were expecting an acceleration.

Those numbers delighted Wall Street, which opened significantly higher on Wednesday. The dollar, on the other hand, fell.

– Strong rise in interest rates in sight –

The question now is whether inflation can be sustainably reduced without plunging the world’s largest economy into recession after two quarters of GDP contraction.

A gas station in Lynnfield, Massachusetts on July 19, 2022 (AFP/Joseph Prezioso)

A gas station in Lynnfield, Massachusetts on July 19, 2022 (AFP/Joseph Prezioso)

The Fed, which is on the move, is trying to provoke a voluntary consumer restraint to ease the pressure on prices.

To this end, it is raising its key interest rate to between 2.25 and 2.50%. This encourages commercial banks to offer more expensive loans to their retail and business customers.

“Combined with the strength of employment and wage growth, the (inflation) data supports the hypothesis of another aggressive rate hike in September,” said Rubeela Farooqi.

The CPI index is a reference in particular for indexing pensions. Another measure of inflation, the Fed’s favorite PCE index, had shown an acceleration to 6.8% over a year in June.

However, pre-pandemic inflation was struggling to reach the 2% considered healthy for the economy. But it accelerated with the disruption in global supply chains and labor shortages in the United States as American households consumed frantically.

Added to this was the war in Ukraine, which caused fuel and food prices to skyrocket.

For its part, the US job market returned to its excellent pre-pandemic health in July, with the unemployment rate falling to 3.5%. However, there are still nearly two vacancies for every available worker, pushing up wages and contributing to inflation.

Kaddouri Ismail

I am Ismail from Morocco, I work as a blogger and online marketer. I am also the founder of the “Mofid” site, in which I constantly publish many important articles in the field of technology, taking advantage of more than 5 years of experience working in the field. I focus on publishing in a group of areas, the most important of which are programming, e-marketing, digital currencies and freelance work.

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