A closely watched inflation gauge by the Federal Reserve remained low last month, reinforcing signs of a slowdown in price growth and raising the possibility that the Fed will leave interest rates unchanged at its next meeting through the end of September.
Thursday’s Commerce Department report showed prices rose just 0.2% from June to July, the third modest increase in a row. Year-on-year prices rose 3.3% in July, compared with an annual increase of 3% in June. However, the year-over-year figure is well below the high of 7% reached a year ago, although it is still above the Federal Reserve’s inflation target of 2%. The increase is due in part to significantly smaller price increases a year ago.
When it comes to individual items, food costs rose just 0.2% from June to July, although they rose 3.5% last year. Energy prices rose by 0.1%.
The latest data comes after other recent reports suggesting the economy and labor market could slow enough to ease inflation pressures. For example, the number of job postings fell in July, and fewer Americans are quitting their jobs in search of better opportunities. Both trends reduce pressure on companies to raise wages to find and retain workers – a move that tends to perpetuate inflation as employers raise prices to offset higher labor costs.
Excluding volatile food and energy prices, “core inflation” rose just 0.2% in June-July, the same as in May-June. Year-on-year, core prices rose 4.2%, up slightly from 4.1% the previous month.