Cheaper gas likely slowed high US inflation for a 2nd month

When the government reports on Tuesday that the acceleration in U.S. prices slowed in August compared with a year earlier for the second consecutive month, it might be a hint that the excruciating inflation of the last 18 months may be gradually lessening.

According to data source FactSet, economists anticipate that the report will reveal that prices increased by 8.1% from a year earlier, which is less than the four-decade high of 9.1% in June and 8.5% in July. Along with the pricing of used automobiles, airfare, and apparel, the sharp decrease in petrol prices is to blame for a large portion of the reduction.

Consumer prices are anticipated to have decreased 0.1% in August on a monthly basis, which is the measure that the Federal Reserve, the organization tasked with battling inflation, pays the most attention to. Following a flat reading in July, it would be the first outright decrease in month-over-month inflation since May 2020.

Despite solid job growth and record low unemployment, inflation has driven up families’ food, rent, and electricity prices, among many other expenditures. As a result, people are suffering, and economic uncertainty is growing.

However, the indications that inflation may have peaked might improve Democrats’ chances in the midterm elections and may already be to blame for President Joe Biden’s somewhat improved public popularity ratings. Biden no longer often discusses how rising costs affect family finances in his talks. Instead, he has emphasized the recent legislative successes of his government, such as a measure passed last month that aims to lower drug costs and combat climate change.

Republicans still accuse Biden’s $1.9 trillion financial bailout plan, approved in March 2021, of being a factor in price increases. The Act increased unemployment benefits and gave a third stimulus check, increasing consumer spending.

Although some also attribute the cause of inflation to clogged supply chains, Russia’s invasion of Ukraine, and major shortages of goods like semiconductors, many mainstream economists largely concur. However, in recent months both chip shortages and supply chain bottlenecks have significantly decreased. Having fallen from a record of $123 in March, oil prices are now about $88, or around 8% lower.

On Monday, the national average for the price of a gallon of gasoline dropped to $3.72 from well over $5 in mid-June. Additionally, several companies are reporting indicators that inflation and supply backlogs are starting to subside.

The pandemic interruptions to foreign semiconductor manufacturing that have decreased vehicle output, said to General Motors Chief Economist Elaine Buckberg, “have mostly faded and we’re in a lot better position today.” She said that overall supply chain disruptions had improved by around 80% since the pandemic’s worst days.

For many families, the cost of groceries has been a particular source of pain. Prices for meat, milk, fruits, and vegetables have increased by double digits in the last year. However, executives at Kroger, the biggest supermarket chain in the country, said that lower pricing for agricultural products like wheat and maize this year may limit rises in food costs.

Gary Millerchip, the retailer’s chief financial officer, told investors last week that he expected inflation to level out in the second part of the year.

Even still, the Fed is anticipated to raise its benchmark short-term interest rate again when it meets next week, despite indications that inflation is slowing. According to the majority of observers, the policymakers will declare a third consecutive three-quarter-point increase, to a range of 3% to 3.25%.

Mortgage, vehicle, and business loan rates often rise as a result of the Fed’s quick rate rises, which are the quickest since the early 1980s with the intention of slowing growth and lowering inflation. According to mortgage buyer Freddie Mac, the average 30-year mortgage rate increased to around 5.9% last week, the highest level in almost 14 years.

Before stopping its rate rises, the Fed may need to see many months of low inflation readings that show price increases are returning to its 2% objective, according to Chair Jerome Powell.

The central bank also keeps a careful eye on prices that do not include the erratic categories of food and energy. Also declining from its high is so-called “core” inflation, which is expected to increase from 5.9% in July to 6.1% in August when compared to a year earlier. Core prices are expected to have increased by 0.4% in August from 0.3% in July, which is twice what the Fed would like.

Most analysts predict that even if inflation has crested, it won’t return to the Fed’s 2% objective for at least another two years, if not longer. Before accounting for inflation, wages are still increasing quickly, which has increased demand for flats as more individuals move out on their own. Additionally, a lack of suitable homes has driven more individuals to continue renting, escalating the battle for flats.

Inflation is being kept high in part by rising rents and more costly services like healthcare.

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