Kaltbaum Capital Management President Gary Kaltbaum and Strategic Wealth Partners CEO Mark Tepper discuss whether inflation is still accelerating in “Cavuto: Coast to Coast.”
Cooler-than-expected inflation data in July fueled hopes that consumer prices had peaked earlier this summer after a year of relentless increases that crushed Americans, sparked a political firestorm for President Biden and forced the Federal Reserve to raise interest rates by the fastest pace in decades.
The consumer price index rose 8.5 percent in July from a year earlier, a bigger decline than the 9.1 percent recorded in June than economists had forecast. On a monthly basis, the index didn’t budge at all as declines in the price of oil, gasoline and airfare offset increases in food and rent.
Excluding more volatile measures of food and gasoline, prices jumped 5.9 percent in July, in line with the previous month.
While the slowdown is likely a welcome respite for the Fed as it tries to rein in inflation, experts have warned that inflation remains painfully high and could slowly return to pre-pandemic levels of around 2%.
INFLATION STILL DESTROYING GROWTH IN AVERAGE AMERICAN WAGE
“At the end of the day, we’re not out of the woods,” said Peter Earle, a research fellow at the nonprofit think tank the American Institute for Economic Research. “There’s a long way to go and a lot can happen before we get back to that 1.5% to 2.5% annual inflation that Americans are used to.”
Whether inflation has truly peaked remains deeply uncertain, especially as COVID-19 and Russia’s war in Ukraine continue to disrupt the global economy. Economists had earlier predicted that the inflationary wave had peaked, only to be proven wrong next month.
Still, expectations are that the rapid pace of price increases will slow in the coming months, although it may be a long descent back to “normal.”
INFLATION FALLS IN JULY: WHERE DOES PRICE RATE HIT AMERICANS HARDEST?
“Within a month or two, there will be clearer evidence that inflation has peaked, but also evidence that the decline is painfully slow,” said Seema Shah, chief global strategist at Principal Global Investors. “Unfortunately, households will continue to feel the brunt of high price pressures on their budgets, while the persistence of wage growth will weigh on corporate profit margins.”
A customer shops at a supermarket in Millbrae, California, on August 10, 2022. (Li Jianguo/Xinhua via Getty Images/Getty Images)
Scorching inflation has created severe financial pressures for most American households, which are forced to pay more for everyday necessities like food and rent. The burden is borne disproportionately by low-income Americans, whose already stretched wages are hit hard by price swings.
Although American workers have seen strong wage gains in recent months, inflation has largely eroded them. Real average hourly earnings fell 0.5 percent in July from the previous month, taking into account higher consumer prices, according to the Labor Department. On a year-over-year basis, real earnings actually fell 3% in July.
“While the boost to the overall economic outlook is welcome, easing inflation will ring hollow for many consumers down the market, whose wages are falling in real terms despite falling gas prices, adding about $400 million back to household balance sheets.” said RSM Chief Economist Joe Brusuelas.
Blueberries and cherries for sale at a farmers market in the Fort Greene neighborhood of Brooklyn, New York, July 16, 2022. (Alison Hess/Bloomberg via Getty Images/Getty Images)
Despite July’s monthly drop in energy prices, Americans are still paying significantly more for gasoline (32.9%) than they did a year ago. Households also face rising food prices, which have risen by a whopping 13.1% in the past year, the biggest increase since 1979, and increasingly steep rents, which have risen by 6, 3%.
In fact, the average American forks out an extra $717 a month because of it the hottest inflation in decadesaccording to an analysis by the Republican Joint Economic Committee.
“Although prices were unchanged from June to July 2022, prices increased 13.3% from January 2021 to July 2022, costing the average American household $717 in July 2022 alone,” it said. says in the analysis.
Even if prices stop rising completely, the inflation that has already occurred between August 2021 and July 2022 will cost the average American household an additional $8,607.
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President Biden, who has been on the defensive for months over soaring prices, hailed Wednesday’s cooler-than-expected report as evidence that inflation “may be starting to slow.” But Biden acknowledged that the battle against inflation may not be over yet.
“We could face additional headwinds in the coming months,” he said. “Our work is far from over.
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