By John Ikani
US inflation eased slightly but remained close to a four-decade high in July, despite cooling energy prices which brought down the annual rate of inflation to 8.5%.
July’s figure, while still high, represents a significant fall from the annual rate of 9.1% recorded in June.
The latest data raise hopes that the pace of price rises in the world’s largest economy has peaked and has started to decelerate, which will be of comfort to both the Federal Reserve and the Biden administration.
However, the data is unlikely to represent a large enough shift to stop the Fed from ploughing ahead with more aggressive tightening of monetary policy to subdue inflation.
Fed chair Jay Powell has said the US central bank was looking for “compelling” evidence that inflation was moving down towards its 2 per cent target.
Energy and food prices are notoriously volatile and could still rise again. And prices are still rising for other essentials including housing and services such as healthcare, which may not fall as quickly as oil or corn.
Wednesday’s inflation data comes as the administration of President Joe Biden and congressional Democrats have been celebrating the passage through the Senate of a $700bn climate, tax and healthcare bill that represents a crucial pillar of the president’s economic agenda.
While they have dubbed it the Inflation Reduction Act, the bill is not expected to have a significant effect on prices in the short term.
However, certain measures are designed to reduce costs over the medium and long term, including a provision allowing the government to negotiate prescription drug prices.
