Inflation remained elevated but declined from historically high levels in July, raising hopes that a relentless price spike may have peaked.
Consumer prices rose 8.5% from a year ago, compared with an annual rise of 9.1% – a 40-year high – in June, according to the Consumer Price Index of the Ministry of Labour. Gasoline prices fell, but food and rents continued to rise.
Economists polled by Bloomberg had estimated that annual inflation would fall to 8.7%.
On a month-to-month basis, consumer prices remained unchanged, compared to a 1.3% increase in June.
Core prices, which exclude volatile food and energy commodities and generally provide a better indicator of future trends, rose 0.3% in July after rising 0.7% the previous month. This kept the annual increase at 5.9% after three consecutive monthly declines.
Stock futures rose. The Dow Jones Industrial Average is expected to open 407 points higher, or 1.2%. The S&P 500 is expected to open 69 points higher, or 1.7%. Investors hope the better-than-expected report will lead the Federal Reserve to raise its key rate by half a percentage point next month to fight inflation instead of a third straight move of three-quarters of a point.
Gasoline prices, the source of soaring inflation, are finally falling on fears that a global recession could crush demand. Prices at the pump fell 7.7% from the previous month, but are still up 44% annually. Regular unleaded averaged $4.03 on Tuesday, down from $4.70 a month ago. Further declines are likely, Goldman Sachs said, citing futures markets.
Grocery prices, however, were up 1.3% from June and up 13.1% over the past 12 months. Recent declines in the price of wheat, corn and other commodities amid fears of recession are expected to drive down food prices. But it could take a while for shoppers to see it in their grocery bills, says Pooja Sriram, an economist at Barclays.
Meanwhile, she says, Russia’s war in Ukraine is driving up food prices by disrupting fertilizer shipments and driving up the cost of basic commodities for farmers.
In July, breakfast cereal prices were up 2% from the previous month and 16.4% from a year ago. Chicken costs have increased by 1.4% and 17.6% per year. And eggs jumped 4.3% and 38% from a year ago.
There were positive signs. Ham prices fell 1%. And beef and veal prices remained unchanged after falling 2.3% in June.
Restaurant prices, however, continued to climb, rising 0.7%, and the trend is starting to hit higher-income households. Earlier this year, inflation weighed primarily on Americans earning less than $50,000, says John Leer, chief economist at Morning Consult, a research firm.
With the pandemic becoming a less virulent threat to public health, Jim Gomes of Palm Desert, Calif., and his wife, Jennifer, have dined out about six times a month since the spring. But the bill for a dinner at a fine restaurant has climbed to around $180 from $120 a year ago, he says.
So the couple cut expenses by sharing a starter and skipping dessert.
“If we get two entries at $40 apiece, it gets a little crazy,” says Gomes, 65, a retired financial executive.
Other price trends were mixed last month. Rents have edged up 0.4% per month and 6.3% over the past year as landlords offset a surge in home sales prices. Medical care services increased by 0.4% and 5.1% per year. And the costs of new vehicles have increased by 0.6% and 10.4% per year.
But used car prices fell 0.4% and clothing prices 0.1%. Summer travelers received more good news as airfares fell for the second month in a row, slipping 7.8%, although prices were still up 27.7% from a year ago. year. And hotel rates fell 2.7% after falling 2.8% the previous month.
Contributor: Elisabeth Buchwald and Medora Lee