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July Inflation Numbers

Inflation numbers

The inflation numbers are better news and the stock market is taking it as a sign the interest rates won’t rise, which is good news if the worst is truly behind us. I’m still not sure 8.5% inflation YOY is something to celebrate.

The U.S. inflation rate came down in July after several months of growth. At 8.5 percent annualized inflation, the number remains high, however. U.S. inflation had grown from 2.7 percent in March 2021 to 9.0 percent in June 2022 – rising almost continuously with just two breaks. Whether the current easing is also a short respite or the turning of a corner remains to be seen.

While the Consumer Price Index for All Urban Consumers (CPI-U) stood at 8.5 percent compared to a year ago, the core index excluding more volatile food and energy prices increased 5.9 percent over the last 12 months. The July reading was the highest since December 1981.

When inflation started spiking in the spring/early summer of 2021, it was largely due to the so-called base effect, reversing the pandemic’s cooling effect on consumer prices a year earlier. At the onset of the pandemic, prices had taken a dive due to a sudden drop in consumer spending and fuel demand before slowly climbing back to their pre-pandemic trajectory over the summer and fall. Due to that initial dip in consumer prices, year-over-year comparisons were always going to be exaggerated for a while, but that is no longer the case.

Back in April 2021, the Federal Open Market Committee said that it was going to aim for “inflation moderately above 2 percent for some time” before raising interest rates to achieve a long-term average of 2 percent inflation. And while it remained unclear how the committee defines “moderately above” and “for some time”, it’s increasingly clear that the 2-percent goal has moved out of scope even after the Fed has tightened rates.

U.S. Inflation Eases in July Statista by Katharina Buchholz, Aug 10, 2022