Drop in US Inflation Sees Drop in Petrol Price

Last month, the US economy’s prices grew quickly but were moderated by a gasoline price decrease. In a report, courtesy of the Labor Department, the annual US inflation rate, which measures how quickly prices grow, dropped to 8.5% in July from June’s peak of 9.1%.

In addition to energy, prices for a variety of other things, like housing and groceries, also increased. As a result, many families are struggling because of the increasing prices, which has greatly impacted the economy.

Despite concerns about the rising costs, which are rising more quickly than they have since the early 1980s, other measures, such as consumer and corporate sentiment, have been negatively impacted.

The US has experienced its highest yearly increase in grocery costs since 1979, or 13.1%, over the past year. In addition, the cost of coffee increased in July, rising 3.5% from June, which contributed to the increase.

Compared to June, housing, healthcare, and leisure services prices increased. However, the increases were partially offset by drops in prices for things like second-hand automobiles, travel, and apparel.

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In comparison to June, when gas prices had averaged over $5 per gallon, a record high, they dropped by 7.7%.

Commentaries from analysts on US inflation

According to Capital Economics chief US economist Paul Ashworth, the fall in inflation is not yet a significant decline that the US Central Bank is hoping for. But he did acknowledge that it was a positive beginning, and over the coming few months, it is anticipated that costs would decline.

Since last year, there has been a sharp increase in prices in the US, fueled by a variety of factors, including strong consumer demand, fueled by Covid-19 government checks that encouraged spending.

In the meantime, shortages of goods, especially necessities like wheat and oil, have been caused by the pandemic-related shutdowns in China, the conflict in Ukraine, and other problems.

To try to stabilize prices, the US central bank has been increasing interest rates since March.

Increasing interest rates is one strategy for attempting to restrain inflation because it makes borrowing more expensive and should induce individuals to borrow less and spend less, which would reduce demand and raise prices.

However, because higher interest rates slow economic growth, the bank risks sending the country into a protracted slump or recession. In addition, the US Commerce Department announced last month that April through June saw the economy contract for the second consecutive quarter.

The current decline in oil prices, which has resulted in reduced fuel prices for consumers, is partly attributable to expectations of a recession in the US and overseas.

Silvia Dall’Angelo, a senior economist at Federated Hermes, predicted that as the bank’s rate hikes took effect and persistently high prices forced consumers to cut back on their spending, demand would continue to decline in the months ahead.

This, she added, “could help push inflation down more quickly over the course of next year, along with stabilizing energy costs and a gradual easing of global supply limitations.”

She continued that the struggle against high inflation is far from over, despite the fact that the Fed may take some solace from today’s inflation number.