The car has become an integral part of the American way of life. Except in big cities, it’s hard to imagine life without it. Refueling had become a nightmare for motorists used to far lower prices than Europeans. Gasoline was the main driver of inflation last year and its 7.7% fall in July has provided some respite. After a four-decade high of 9.1% in June, inflation fell to 8.5% in July, the first month in which prices have not risen in a long time, according to the Bureau of Labor Statistics.
Inflation remains well above the 2% target set by the US Federal Reserve. At its latest monetary policy meeting, the central bank said it would review any new data ahead of its next meeting on September 20-21. In the last two, interest rates have been raised by 0.75 point and another increase is expected in September, depending on price and economic developments. The value for July was even slightly lower than economists had expected and the stock markets reacted upwards.
Although the pump is beginning to take a breather thanks to developments in crude oil prices, there is no telling how long it will last. Meanwhile, the shopping cart continues to anger Americans as food prices haven’t been seen in decades. Food for home consumption increased by 13.1%. Inflation, which both the Biden administration and Federal Reserve Chairman Jerome Powell expected to be transitory, has been entrenched and transmitted in part to wage increases. The index, which excludes food and energy, which is core inflation, remains at 5.9% year-on-year.
A 0.6 point y/o fall in inflation and the prospect of a slowdown in the economy suggest that 9.1% was the highest inflation peak. Gasoline prices continue to slide in August and the central bank is determined to crack down, even at the cost of a full-blown recession.
Gross domestic product has fallen for two consecutive quarters, according to preliminary estimates released two weeks ago, the job market remains strong and the unemployment rate has reached the pre-pandemic minimum, which is also the lowest level in the last half century: the 3.5 %. In the United States, semi-official business cycle ratings are performed by a private technical body using various indicators. The problem is that it takes a long time to do its job, often not certifying entry into a recession until it has emerged from it.
After strong and unexpected job creation in July, the United States has a record number of jobs. However, economists see a cooling of the labor market as a result of the rise in interest rates.
Joe Biden is aware that as prices rise, his popularity will fall. The shopping basket was the main issue ahead of the November 8 midterm general election, though it has now been overshadowed by Donald Trump’s legal troubles registering his Mar-a-Lake mansion.
Two more inflation data, August and September, are yet to be released ahead of the November 8th elections. Biden has called his flagship project the Inflation Reduction Act, although it will have little impact on price levels in the short term. The House of Representatives is expected to pass the bill this Friday after Sunday’s marathon session, which gave it the go-ahead from the Senate.