The Consumer Price Index (CPI) announced this week that inflation eased slightly in July, dropping from 9.1 percent in June to 8.5 percent. For the first time in months, there seems to be a sign of relief from an inflation peak not seen in 40 years. Tulane University economist Felix Rioja said this is good news for consumers when it comes to some energy prices but warned that electricity and food costs continue a steady rise. He also points to higher interest rates as a source of the inflation decline.
“On the positive news for households, energy prices fell in July, mostly driven by lower gasoline and natural gas prices, though electricity prices increased,” Riojas said. “However, the food CPI has continued to rise in July at similar rates as each of the past few months, so households will not see the relief on that front.
“The Federal Reserve and some experts hoped this would have happened sooner since the Federal Reserve started sizable interest rate increases months ago. Higher interest rates may be finally cooling the economy as borrowing and spending slow down, and thus prices stop rising as fast as they were. But the inflation rate is still historically high.”
Rioja is available to speak about the decline of inflation and what consumers should expect for the remainder of 2022.
“We hope inflation rates will continue to fall, so markets will carefully watch what happens in August and September. We must also keep an eye on the labor market to see what happens to vacancies and the unemployment rate. We have been in a period of extremely tight labor markets and reducing the inflation rate by raising interest rates has typically brought increases in the unemployment rate and a recession. Achieving the proverbial ‘soft-landing’ has been historically elusive when the economy is similar to its current state,” Rioja said.