Falling gas prices gave Americans a slight break from the pain of high inflation last month, though the surge in overall prices slowed only modestly from the four-decade high it reached in June, reports the AP. Consumer prices jumped 8.5% in July compared with a year earlier, the government said Wednesday, down from a 9.1% year-over-year jump in June. On a monthly basis, prices were unchanged from June to July, the smallest such rise in more than two years. Still, prices are spiking across a wide range of goods and services, leaving most Americans worse off. Average paychecks are rising faster than they have in decades—but not fast enough to keep up with accelerating costs for such items as food, rent, autos, and medical services.
While there are signs that inflation may ease in the coming months, it will likely remain far above the Federal Reserve's 2% annual target well into next year or even into 2024. Chair Jerome Powell has said the Fed needs to see a series of declining monthly core inflation readings before it would consider pausing its rate hikes. One positive sign, though, is that Americans' expectations for future inflation have fallen, according to a survey by the Federal Reserve Bank of New York, likely reflecting the drop in gas prices that's highly visible to most consumers. Inflation expectations can be self-fulfilling: If people believe inflation will stay high or worsen, they're likely to take steps—such as demanding higher pay—that can send prices higher in a self-perpetuating cycle. Companies then often raise prices to offset their higher labor costs. But the New York Fed survey found that Americans foresee lower inflation one, three, and five years from now than they did a month ago.
President Biden has pointed to declining gas prices as a sign that his policies—including large releases of oil from the nation's strategic reserve—are helping lessen the higher costs that have strained Americans' finances, particularly for lower-income Americans and Black and Hispanic households. Yet Republicans are stressing the persistence of high inflation as a top issue in the midterm congressional elections, with polls showing that elevated prices have driven Biden's approval ratings down sharply. On Friday, the House is poised to give final congressional approval to a revived tax-and-climate package pushed by Biden and Democratic lawmakers. Economists say the measure, which its proponents have titled the Inflation Reduction Act, will have only a minimal effect on inflation over the next several years. (More inflation stories.)
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