Inflation has cooled for the second consecutive month since May, although rising energy costs triggered by the outbreak of the Iran war and related geopolitical tensions continue to pose economic challenges.
| PULSE POINTS |
❓ WHAT HAPPENED: Inflation has eased for the second consecutive month since May, according to a new Consumer Price Index (CPI) report. 📺 DETAIL: According to the Bureau of Labor Statistics, inflation rose at an annual rate of 3.4 percent in July. This represents a decline from May, which saw inflation hit a three-year high at 4.2 percent. This was primarily due to the rise in oil prices resulting from the outbreak of the Iran war in late February. According to the Consumer Price Index (CPI), which tracks the average cost of basic goods and services, core CPI, which excludes food and energy, also slowed to 2.5 percent, down from 2.6 percent in June. Energy prices in July increased 14.7 percent compared to last year. This spike was mostly driven by rising gas prices, which increased by 24.6 percent. Nevertheless, gas prices in July were approximately ten cents cheaper than the month prior. July’s average gas price was $4.06 per gallon, significantly higher than the $3 per gallon average in February. Brent crude oil prices surged above $100 per barrel in July, although they have started to gradually decline. 🎯 IMPACT: The Federal Reserve’s next interest rate decision in September will likely hinge on this inflation data. The Federal Reserve is also likely to consider August’s CPI report when it makes its decision. If trends continue, there is reason to believe inflation could return to the Federal Reserve’s two percent target by next year, assuming energy prices continue to stabilize. This builds on a trend first reported last month, which showed that inflation had slowed throughout June. The CPI fell 0.4 percent, its sharpest monthly decline since April 2020. This was primarily caused by a 5.7 percent drop in energy costs, including a 9.7 percent decline in gas prices. As such, this story demonstrates the importance of bringing down gas prices to lowering the overall cost of living in the United States, which is inseparable from stability in the Middle East and passage through the Strait of Hormuz. Approximately 20 percent of the world’s oil exports pass through the strait, making it a vital chokepoint in international trade. |
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