In a study highly watched by the Federal Reserve, it was revealed that inflation decreased last month as energy costs dropped.
Following a 6.8% annual increase in June, which was the largest increase since 1982, consumer prices increased by 6.3% in July, according to data released on Friday by the Commerce Department. Energy costs were the deciding factor in July since they decreased after rising in June.
The government’s numbers released on Friday suggest that the highest inflation in 40 years may be cooling off, helped by decreasing gas costs.
The Federal Reserve, which regularly monitors this inflation indicator, has been hiking rates to raise the cost of borrowing in an effort to rein in consumer and business spending demand and control inflation.
On Friday morning, Fed Chair Jerome Powell will give what will be his most keenly watched speech of the year, with investors and economists listening for any hints about how quickly and for how long the Fed might continue to raise its main interest rate.
The main concern with this report, according to Harvard economist Jason Furman, is that it is almost flawless.
“This is concerning since data is unstable, false dawns occur, and it may be time to intensify efforts for an incomplete mission. Powell, though, can and ought to smile a bit more this morning.”
According to Commerce, so-called core inflation, which includes volatile food and energy prices, increased 4.6% from a year earlier in December.
The economy recovered from the brief but severe coronavirus recession a year earlier with astonishing speed, and inflation began to rise quickly in the spring of 2021.
Demand from customers was outpacing supply, overtaxing warehouses, ports, and freight yards, causing delays, shortages, and price increases.
The Fed was sluggish to act when inflation started to rise because they believed it was a transient side effect of supply chain delays.
However, the U.S. central bank acted hastily and increased its benchmark interest rate four times since March as prices continued to rise.