Falling gas prices gave Americans a slight break from the pain of high inflation last month, though overall price increases slowed only modestly from the four-decade high that was reached in June.
On a monthly basis, prices were unchanged from June to July, the smallest such rise in more than two years.
Wednesday’s report raised hopes that a modest slowdown in inflation might enable the Federal Reserve to raise short-term interest rates by less than had been anticipated when it meets in late September. Many economists had forecast that it would increase its benchmark rate three-quarters of a point for a third straight time. But financial markets are now predicting that a half-point increase is more likely.
Average paychecks are rising faster than they have in decades, but not fast enough to keep up with higher costs. On Friday, the House is poised to give final congressional approval to a revived tax-and-climate package pushed by Biden and Democratic lawmakers. 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.
One positive sign, though, is that Americans’ expectations for future inflation have fallen, according to a survey by the Federal Reserve Bank of New York, likely reflecting the drop in gas prices that is highly visible to most consumers. Yet in categories where price changes are stickier, such as rents, costs are still surging. One-third of Americans rent their homes, and higher rental costs are leaving many of them with less money to spend on other items.
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