Inflation as measured by the Federal Reserve’s preferred indicators cooled down in July to a 6.3 percent year-over-year clip, compared with 6.8 percent in June. Stripping out food and energy prices, the personal consumption expenditure index rose by 4.6 percent over the same period 12 months earlier, down from 4.8 percent in June.
Overall inflation declined by 0.1 percent in July versus June, according to the Bureau of Economic Analysis. And although “core” inflation grew by 0.1 percent, that was softer than market expectations. Still, the effects of inflation and a cooling economy were being felt by consumers as income grew by just 0.2 percent in July and spending grew by only 0.1 percent, down from 0.7 percent and 1 percent, respectively, a month earlier.
“The American people are starting to get some relief from high prices,” President Joe Biden said in a statement after the inflation numbers came out Friday morning. “We have more work to do. We have to help families who have been squeezed by decades living paycheck to paycheck. But today confirms that our economic plan is building the economy from the bottom up and the middle out and we are making progress.”
The Bureau of Economic Analysis released July inflation and consumer data Friday before Federal Reserve Chair Jerome H. Powell spoke in Jackson Hole, Wyo.
The Fed’s rate-setting board, the Federal Open Market Committee, will meet again next month to set short-term lending rates, with all eyes on the inflation data to determine how aggressive central bankers should be to help stem the price rises seen over the past 18 months.
“While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the committee will need to see before we are confident that inflation is moving down,” Powell said at the Jackson Hole Economic Symposium.
Powell acknowledged that higher interest rates would help bring down inflation, but also “bring some pain to households and businesses.” But he said a failure to tackle inflation would cause greater pain.
“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases,” Powell said. But he added that “restoring price stability” — bringing inflation down to the Fed’s 2 percent annual target — “will likely require maintaining a restrictive policy stance for some time.”
“The historical record cautions strongly against prematurely loosening policy,” Powell said.
Some economists, including Jason Furman, a former top Obama administration official, believe the Biden administration’s move this week to cancel student loan debt could cost roughly $500 billion and pour more fuel onto the inflation fire. But others argue that the effects will be small and largely won’t be felt until after the midterm elections, with a pause on interest repayments that is set to end early next year offsetting some of the benefit and thus inflationary impact.