Inflation eased last month as energy prices tumbled, according to a report closely watched by the Federal Reserve.
Consumer prices rose 6.3% in July from a year earlier after posting an annual increase of 6.8% in June, with the latter representing the biggest jump since 1982, the Commerce Department reported Friday. Energy prices made the difference in July: They dropped last month after surging in June.
Friday’s government figures signal that the hottest inflation in 40 years may be easing, aided by lower prices at the pump. The Federal Reserve, which closely watches this inflation gauge, has been raising rates to increase the cost of borrowing with the goal of tamping purchasing demand from consumers and businesses and taming inflation.
Fed Chair Jerome Powell on Friday morning will deliver what will be his most closely scrutinized speech of the year with investors and economists turning over his remarks for any clues about how fast the Fed may continue to raise its key interest rate — and for how long.
“Bottom line: The biggest worry about this report is that it is nearly perfect,” noted Jason Furman, a Harvard economist, on Twitter. “The reason that is a worry: data is volatile, there are false dawns, so if anything time to double down on mission not at all accomplished. But Powell can and should smile a little more this morning.”
So-called core inflation, which excludes volatile food and energy prices, rose 4.6% last month from a year earlier, Commerce said.
Inflation started rising sharply in the spring of 2021 as the economy rebounded with surprising speed from the short but devastating coronavirus recession a year earlier. Surging customer orders overwhelmed factories, ports and freight yards, leading to delays, shortages and higher prices.
The Fed was slow to respond to rising inflation, thinking it the temporary result of supply chain bottlenecks. But as prices continued to climb, the U.S. central bank moved aggressively, hiking its benchmark interest rate four times since March.
