A Bit of Inflation Relief in July

Energy costs fall last month, but many other prices are still rising swiftly.

guy shopping at grocery store choosing between two juices
(Image credit: Getty Images)

Consumer prices were unchanged, on average, in July because of a large drop in gasoline prices and a smaller decline in natural gas from the previous month. While lower prices at the gas pump are a welcome respite for drivers, prices still rose strongly for basics like food, rent and new vehicles. The annual inflation rate edged down to 8.5% from 9.1% in June.

There were a few breaks in the relentless pace of price increases. Appliance prices are coming down, along with sporting goods, men’s clothing, car rentals and hotel rates. Airfares dropped because of lower fuel costs, and used-car prices edged down. All of these were enough to bring down non-energy, non-food price increases to a moderate level.

But this will likely not be enough to completely mollify the Federal Reserve. The lower July inflation report was welcome, of course, and it likely will keep the central bank to its expected half-point interest rate hike in September instead of a larger one, but the Fed knows that still-strong wage increases are going to keep upward pressure on prices in general. It will probably take several months in a row of tamer inflation before the Fed will feel that the trend has changed. Expect inflation at the end of the year to be around 8.0%, down a bit from the peak of 9.1% in June, but still high.

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David Payne
Staff Economist, The Kiplinger Letter
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.