In some good news for Vice President Kamala Harris and the economy, annual inflation fell to 2.9% in July — now marking four months of disinflation.
The decline of a tenth of a percentage point in the consumer price index comes as most economists expected that annual inflation would remain at 3%, the same as the month before.
Inflation is now the lowest it has been since March 2021, shortly after President Joe Biden was sworn in.
On a month-to-month basis, inflation rose 0.2%.
Inflation is the biggest concern facing voters, so the White House and Harris campaign are undoubtedly breathing a sigh of relief that there wasn’t an unexpected uptick. Republicans have worked hard to tie Harris to the economy.
The Federal Reserve, which has raised interest rates to their highest level since the turn of the century, will also be pleased to see inflation continuing its descent back to earth. Continued declines may allow the Fed to cut, which would be good news for consumers and the labor market.
The elephant in the room recently has been the lackluster July employment report.
The economy added 114,000 jobs in July, far fewer than expected, and the unemployment rate rose two-tenths of a percentage point to 4.3%, the Bureau of Labor Statistics reported. That was a big miss from expectations that more jobs would be added and the unemployment rate would remain at 4.1%.
If the labor market begins to soften even more, it could force the Fed’s hand in cutting rates, something that would be bad news if the inflation rate isn’t moving down.
The employment report also triggered a recession indicator known as the Sahm rule. That indicator is triggered when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. It has signaled the start of all postwar recessions.
Ahead of the Wednesday CPI report, investors and economists were predicting the Fed would cut rates at its September meeting but were split on how much. Some expected a standard 0.25-percentage point cut, while others anticipated a bigger half-percentage point revision.
Core CPI inflation, a measure of inflation that strips out volatile energy and food prices, dropped a tenth of a percentage point to 3.2% on an annual basis, right in line with expectations. Month-to-month core inflation punched in at 0.2%.
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“Any Fed official waiting for a little more data to make the decision on whether to cut interest rates got it in spades this morning as, while inflation isn’t dead, there is deflation in commodity prices, which balances out the moderate inflation seen in some services prices, which is mainly generated from the higher costs of housing,” said Chris Rupkey, chief economist at FWDBONDS.
All economic data will be closely watched leading up to the election. Democrats and the Biden administration have worked to emphasize bright spots in the economy, such as robust economic output, while Republicans have blamed too-high inflation on the administration and, in turn, on Harris.
Sen. JD Vance (R-OH), who is the Republican vice-presidential nominee, blasted the Biden administration for years of cumulative inflation during a campaign event on Wednesday. He pointed out that while inflation rose 2.9% from a year ago, it is much higher than it was in January 2021, when Biden and Harris were sworn into office.
“When they say that inflation is down, they mean from a baseline where groceries are already 30% more expensive than they were when Donald Trump was president,” Vance said. “And they are not saying it is coming down, they’re just saying it’s not coming up as fast as it was three years ago.”
