- US Inflation Rate at 3.2% in July Despite Interest Rate Hike
- Housing, Auto Insurance, and Food Costs Drive Up Inflation
- Slowing Price Increases and Positive Outlook on Inflation Trend
Despite a large hike in interest rates to combat inflation, US prices rose last month.
The Labour Department recorded 3.2% annual inflation in July, driven by rising housing, vehicle insurance, and food prices.
This was an increase from June’s rate of 3%, which was the lowest rate in over two years.
After relatively feeble price inflation in July of last year, analysts expected the headline rate to rise.
Nonetheless, the report from the US Department of Labour provided additional evidence that price increases were slowing.
“Underlying inflation is trending in the right direction,” said Hussain Mehdi, macro and investment strategist for HSBC Asset Management, while Harvard economist Jason Furman described the most recent data as “unambiguously good news.”
The US central bank has raised its benchmark interest rate to more than 5.25 percent, the highest level in 22 years, to calm the economy and reduce inflationary pressures.
Last year, inflation in the United States peaked at 9.1%, well above the Federal Reserve’s 2% target.
However, it has diminished substantially as the impact of the Ukraine conflict on food and energy prices has diminished.
Oxford Economics’ head US economist Ryan Sweet says the fall did not imply the rate-setting central bank’s “mission accomplished”.
“However, we anticipate that the Fed will not raise interest rates in September and November when inflation should have slowed even further,” he said.
Compared to June, core prices increased by a modest 0.2%. The same tempo was maintained between May and June.
Last month, prices for some items, including used cars and airline tickets, decreased.
Many analysts anticipate that housing costs, which are heavily weighted in US inflation calculations, will begin to alleviate in the coming months, citing independent reports indicating a slowdown in the growth of rental rates.
Due to rising fuel prices, inflation may take longer to fade.
The average national price for ordinary petrol in the United States rose above $3.80 per gallon in early August, up from approximately $3.50 per gallon a month earlier, according to the motor club association AAA.
Sarah House, a Wells Fargo economist, stated, “The recent trend is encouraging and confirms that inflation is headed in the direction desired by the Fed.” However, we are cautious about becoming excessively enthusiastic.
