Stressed Consumers Get Some Relief As July Inflation Dips to 8.5%

The government’s closely watched CPI report showed Wednesday (Aug 10) that inflation eased to 8.5% in July, marking a larger than expected dip from the 9.1% level posted in June.

According to the latest Bureau of Labor Statistics (BLS) report, a 10.9% annual increase in food prices — the largest move in that category since 1979 — helped keep the headline figure hovering close to levels not seen in 40 years.

The drop was largely due to a nearly 8% month-on-month decline in the cost of gasoline, as the national average price per gallon slid to $4.19 from nearly $5.  Even so, the report showed that overall Energy prices are up about 33% in the past year, albeit down from the 41.6% increase posted in June.

Taken together, the so-called Core Inflation Rate, which excludes the volatile Food and Fuel components, was unchanged in July at 5.9%.

“Even if headline inflation slows on account of weaker energy prices but core inflation is stubbornly high, the Fed is likely to maintain its tightening bias as it will be concerned about high inflation being entrenched in consumer price expectations,” Blerina Uruci, U.S. economist at T. Rowe Price Group, told The Wall Street Journal.

See also: Inflation Bites as 13% of US Consumers Spent More Than They Earned in Last Six Months

According to a PYMNTS report earlier this month, 4 out of 10 paycheck-to-paycheck consumers with issues paying monthly bills spent more than they earned in the past six months.

Rapidly rising prices have become persistent following a surge in inflation from goods, energy and food, said.

“That divergent trend shows there’s a breadth of inflation in that housing inflation and service-sector inflation remain elevated,” Greg Daco, chief economist for EY-Parthenon, a consulting firm told WSJ.

Daco said price pressures in those areas could linger. “And those tend to be stickier than goods, which can and will start to reverse.”