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In a positive milestone for the U.S. economy, annual inflation rates have dropped below 3% for the first time since March 2021, a Bureau of Labor Statistics report says. This fall in inflation also precedes a much-anticipated announcement by the Fed that they will be cutting interest rates at next month's meeting—a move that was hoped for in July but did not materialize, with rates remaining unchanged since July 2023, the last time they were lowered.
According to the Bureau of Labor Statistice In July, the food index rose by 0.2%, mirroring June’s increase. The food at home index slightly increased by 0.1%, with mixed results across grocery categories: meats, poultry, fish, and eggs surged by 0.7%, driven by a 5.5% spike in egg prices, while the fruits and vegetables index rose by 0.8%. However, the indexes for other food at home, cereals, and bakery products all fell by 0.5%. Food away from home saw a 0.2% rise, with limited-service meals increasing by 0.3% and full-service meals by 0.1%.
Over the past year, the food at home index increased by 1.1%, with significant gains in the meats, poultry, fish, and eggs index (+3.0%). In contrast, fruits and vegetables, as well as dairy and related products, saw slight declines. The food away from home index increased by 4.1%, driven by a 4.3% rise in limited-service meals and a 3.8% increase in full-service meals.
The energy index remained flat in July, following a 2.0% decline in June. Electricity prices edged up by 0.1%, while natural gas prices fell by 0.7%. Over the last 12 months, the energy index increased by 1.1%, with electricity rising by 4.9%.
The index for all items less food and energy rose by 0.2% in July, driven largely by a 0.4% increase in the shelter index. Over the last year, this category saw a 3.2% rise, with shelter prices contributing significantly (+5.1%).
Housing, which makes up over one-third of the Consumer Price Index (CPI), has been the main factor slowing inflation's decline. Economists believe this obstacle will eventually ease due to the Bureau of Labor Statistics' delayed and complex process for measuring housing-related prices, including estimating the rental value of owner-occupied homes. Recently, the housing index has begun to more accurately reflect the slower or flat rent increases seen in reality. During the pandemic and subsequent economic recovery, housing costs surged due to high demand for remote work, which strained already low inventory. The Federal Reserve's aggressive interest rate hikes further worsened the situation by raising borrowing costs for renters, buyers, and builders.
This news will be seen as a massive positive for the incumbent Biden administration and the VP Kamala Harris campaign for the White House. It signals an improving economy going into the November election, especially following the weaker-than-expected job report released earlier this month, which memorably caused the U.S. and the Japanese stock market to sharply decline for a day, triggering brief fears of a recession.
This news shows that teh US Economy is slowly improving since the pandemic and its realated inflation, and that depeding on the expected Fed Rate cuts next month will signal how well the economy will look going into the November election and removes fears that the US will fall into recession or decline in the near future.