The pace of price increases in the United States slowed in July as energy costs dropped, pulling annual inflation down slightly from a four-decade high.
The Labor Department said on Wednesday that the consumer-price index, a measure of what consumers pay for goods and services, rose 8.5% in July from the same month a year earlier, down from 9.1% in June. June marked the fastest pace of inflation since November 1981.
Monthly, the CPI was flat in July after rising for 25 consecutive months, resulting in falling energy prices such as gasoline. Core CPI, which excludes often-volatile energy and food prices, eased to 1.8% in July from 2.1% the previous month.
The data suggest that inflationary pressures in the economy may be easing, which could give the Federal Reserve some relief as it contemplates when to begin scaling back its extraordinary stimulus measures.
Prices for food and housing, two of the largest categories in the CPI basket, continued to rise in July. Food prices were up 0.4% from the previous month and 3.8% from a year earlier, while shelter costs rose 0.3% from June and 4.3% from July 2012.
Transportation costs fell 1.6% in July, led by a 5.4% drop in gasoline prices, while medical-care expenses rose 0.3%.
The 8.5% annual increase in overall consumer prices was the biggest since a 9.0% rise in December 2010 and followed gains of 8.3% in May and 8.1% in April.
Inflation has been elevated this year as the economy has strengthened and energy and food prices have risen. But Fed officials have downplayed those increases, saying they are likely transitory.
The central bank expects inflation to moderate over time as higher energy and food prices dissipate. The Fed’s preferred measure of inflation, the personal consumption expenditures price index, rose just 1.4% in June from a year earlier.
The Fed has been holding short-term interest rates near zero since December 2008 and has more than tripled the size of its balance sheet to $3.6 trillion through a series of bond-buying programs aimed at holding down long-term borrowing costs and spurring economic growth.
The latest data on inflation and other measures of economic activity are likely to be weighed by Fed officials as they debate when to start scaling back the pace of asset purchases. The Fed has said it intends to keep rates low as long as unemployment remains above 6.5% and inflation expectations remain well anchored.
Fed Chairman Ben Bernanke has said the central bank could start reducing the pace of asset purchases later this year if the economy continues to improve, to end the program by mid-2014. But he has stressed that any changes to monetary policy will be data-dependent.
The economy has been picking up recently, with job growth and the housing market recovering. But high levels of long-term unemployment and tight credit conditions remain challenges.
Wednesday’s inflation report also showed that prices received by producers fell 0.1% in July from the previous month, while producer prices excluding food and energy declined 0.3%. Annual producer-price inflation eased to 1.8% in July from 2.4% in June.
The report also showed that import prices declined 0.3% in July from the previous month, while export prices fell 0.1%. Annual import-price inflation was 2.9% in July, down from 3.2% the last month, while export-price yearly inflation was 1.6%, down from 1.8% in June.
The data suggest that inflationary pressures in the economy may be easing, which could give the Federal Reserve some relief as it contemplates when to begin scaling back its extraordinary stimulus measures. However, high levels of long-term unemployment and tight credit conditions remain challenges.
Do you think the Fed will begin scaling back its asset purchases later this year? Why or why not? Let us know in the comments below.
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