Inflation stayed elevated but eased from historically high levels in July, raising hopes that a relentless surge in prices may have peaked.
Consumer prices increased 8.5% from a year ago, down from a 9.1% annual rise – a 40-year high – in June, according to the Labor Department's Consumer Price Index. Gasoline prices fell but food and rent continued to march higher.
Economists surveyed by Bloomberg had estimated yearly inflation would fall to 8.7%.
On a monthly basis, consumer prices were unchanged, compared to a 1.3% rise in June.
Core prices, which exclude volatile food and energy items and generally provide a better gauge of future trends, increased 0.3% in July following a 0.7% rise the prior month. That held the annual increase at 5.9% after three straight monthly declines.
Stock futures shot higher. The Dow Jones Industrial Average is set to open 407 points higher, or 1.2%. The S&P 500 is set to open 69 points higher, or 1.7%. Investors hope the better-than-expected report will lead the Federal Reserve to raise its key interest rate by a half percentage point next month to fight inflation instead of a third straight three-quarters point move.
Gas prices, which led the inflation spike, are finally tumbling on fears that a global recession will squash demand. Pump prices fell 7.7% from the prior month but are still up 44% annually. Unleaded regular averaged $4.03 Tuesday, down from $4.70 a month ago. Further declines are likely coming, Goldman Sachs says, citing futures markets.
Grocery prices, though, rose by 1.1% from June and are up 10.9% over the past 12 months. Recent declines in the price of wheat, corn and other commodities amid the recession concerns are expected to push down food costs. But it could take some time for shoppers to see it in their grocery bills, says Barclays economist Pooja Sriram.
Meanwhile, she says, Russia’s war in Ukraine is pushing up food costs by disrupting fertilizer shipments and driving up the commodity's cost for farmers.
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