The rate of inflation in the U.S. has declined significantly

The rate of inflation in the U.S. has declined significantly

U.S. consumer spending barely rose in July, but inflation fell significantly, which may allow the Federal Reserve to roll back aggressive interest rate hikes.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.1 percent last month, the Commerce Department reported Friday. Data for June were revised slightly downward to show that spending rose 1.0 percent instead of the 1.1 percent reported earlier.

Economists polled by Reuters had predicted that consumer spending would rise 0.4 percent.

According to the Association of American Motorists, the national average gasoline price fell to about $4.27 a gallon in the last week of July from a record high of $5 in mid-June. That probably freed up money for other spending items.

Prices for clothing and services such as airfare and hotel stays also fell in July, keeping inflation in check.

The moderate pace of consumer spending in the second quarter helped cushion the economy from a sharp slowdown in inventory accumulation caused by supply chain problems. Last quarter, gross domestic product shrank 0.6% year-over-year after a 1.6% contraction in the first quarter.

However, there was no recession in the economy. On the income side, the economy grew at a rate of 1.4%, compared with 1.8% in January-March, the government said Thursday.

Downside risks to the economy remain as the Federal Reserve aggressively tightens monetary policy to curb inflation. However, there is cautious optimism that the U.S. central bank could slow the pace of rate hikes if inflation continues to decline.

The consumer spending index (PCE) fell 0.1% last month after rising 1.0% in June. In the 12 months from July 2021 to July 2022, the PCE index rose 6.3%. The PCE rose 6.8% year-over-year in June.

Excluding food and energy costs, the PCE rose 0.1% after rising 0.6% in June. The so-called core consumer spending index rose 4.6% year-over-year in July after rising 4.8% in June.

Although oil prices have fallen significantly, rents remain high, making some economists hesitant to declare that inflation has peaked.

A White House statement Friday noted with satisfaction that “Americans are beginning to get some relief from high prices,” and that the Inflation Reduction Act, which President Biden signed into law in July, should also bear positive fruit.

“Gasoline prices fell every day this summer, the fastest decline in more than a decade,” the document signed by President Biden said. – And today’s report showed that Americans’ personal incomes also rose last month.”