Inflation slowed more than expected in July in the United States, driven by the drop in the price of gasoline at the pump, bringing a breath of fresh air to Joe Biden a few months before crucial elections.
However, it remains at a very high level.
Consumer prices rose 8.5% in July year on year, according to the Consumer Price Index (CPI) released Wednesday by the Labor Department, following rising 9.1% in June, a record for 40 years.
This is better than expected, since inflation was expected at 8.7% in July, according to the MarketWatch consensus.
And over a month, inflation is even zero, which means that prices have, once morest all expectations, not increased compared to June, when it rose to 1.3% last month by compared to May.
Inflation is still at a very high level, which might prompt the US central bank (Fed) to raise its interest rates sharply once more at its next meeting in September.
The CPI index is a reference in particular for indexing pensions.
These figures delighted Wall Street, which was preparing to open sharply higher.
The dollar, on the other hand, fell. Around 12:45 GMT (2:45 p.m. CET), the greenback notably lost 1.21% once morest the European currency at 1.0338 dollars for one euro, and lost 1.32% at 1.2243 dollars for one pound.
For a year and a half, prices had hardly stopped climbing in the United States, eroding household purchasing power. And by extension, the popularity rating of the Democratic president.
His opponents accuse him of having an inflationary economic policy, due in particular to his generous stimulus plan in March 2021, just following his arrival at the White House.
Republicans reignited their criticisms on Sunday, with the adoption in the Senate of Joe Biden’s ‘Inflation Reduction Act’ on climate and health, which they accuse on the contrary of generating unnecessary public spending.
The Fed on the move
The question now is whether it will be possible to bring inflation down sustainably, without plunging the world’s largest economy into recession, following already two quarters of GDP contraction.
The Fed, which is on the move, is seeking to provoke a voluntary slowdown in consumption, to ease the pressure on prices.
It has thus raised its key rates four times, now between 2.25 and 2.50%. The increase encourages commercial banks to offer their retail and business customers loans with higher interest rates.
And the longer inflation stays, the more the Fed will raise rates.
Another measure of inflation, the Fed’s preferred PCE index over the CPI, had shown an acceleration in June to 6.8% year on year.
Inflation was struggling, however, before the pandemic, to reach the 2% considered healthy for the economy. But it accelerated with global supply chain disruption and labor shortages in the United States, as American households consumed frantically.
Added to this was the war in Ukraine, which sent fuel and food prices soaring.
Especially since the American labor market remains very dynamic. And in July, the unemployment rate fell back to 3.5%, as before the pandemic.
But there are still nearly two vacancies for every available worker, pushing wages up and contributing to inflation.
/ATS
