Inflation Expected to Slow Amid Decline in Gas Prices

Inflation cooled in July as gas prices and airfares fell, a welcome reprieve for consumers and economic policymakers but not yet a conclusive sign that price increases are turning a corner.

The Consumer Price Index climbed 8.5 percent in the year through July, compared with 9.1 percent the prior month, a bigger slowdown than economists had projected. After stripping out food and fuel costs to get a sense of underlying price pressures, prices climbed by 5.9 percent through July, matching the previous reading.

  • On a monthly basis, the price index did not move at all in July. That’s because fuel prices, airfares and used cars declined in price, offsetting increases in rent and food costs.

  • Core inflation was also slower than economists had expected on a monthly basis, climbing by 0.3 percent. In June, that figure was 0.7 percent.

  • Today’s report is probably welcome news at the White House and the Federal Reserve, both of which have been waiting for inflation to decelerate.

  • But it’s easy to overstate how much July’s slowdown matters. Inflation is still abnormally high. The decline owed in large part to gas prices, and they can always jump again.

  • There are some real reasons to believe inflation will slow in the months ahead: Supply chain pressures, for instance, show signs of easing.

  • But there are also reasons to worry. Wage growth remains rapid. And housing costs, particularly rents, continue to climb, which could keep inflation high for some time.