U.S. Inflation Eases to 3.4 Percent in July as Core Pressures Cool

U.S. inflation slowed in July, with consumer prices rising 3.4 percent from a year earlier, down from 3.5 percent in June, the Labor Department said Wednesday. On a monthly basis, prices rose 0.1 percent. Excluding volatile food and energy costs, core inflation eased to 2.5 percent from a year earlier and rose 0.2 percent from June.

The report showed gasoline prices fell 2.9 percent from June to July and grocery prices slipped 0.1 percent. Still, gasoline is about 25 percent higher than a year ago, and the motor club AAA said the national average price was $4.04 a gallon, 16 cents higher than a month earlier. The Labor Department also reported increases in airline fares, computers and used cars in July.

Economists said the softer reading could reduce pressure on the Federal Reserve to raise its key interest rate, though officials remain divided. “America still has an inflation problem, but there are encouraging signs that price pressures outside of the gas pump are easing,” Heather Long, chief economist at Navy Federal Credit Union, said. Dan North, senior economist at Allianz Trade North America, said, “We’re clearly not out of the woods, however it makes the Fed’s decision a little bit easier, because now you see that inflation is creeping down.”

Analysts said inflation has been driven by a series of shocks, including tariffs imposed last spring, higher energy costs tied to recent conflict in the Middle East and heavy investment in artificial intelligence that has lifted demand for computer chips. Small manufacturers have felt the effects: Julie Robbins, chief executive of Akron, Ohio-based EarthQuaker Devices, said her company paid $200,000 in tariffs this year and has raised prices twice to offset costs.

Service costs such as health care, restaurant meals and car maintenance rose about 3 percent from a year earlier, keeping overall inflation above the Fed’s 2 percent target, economists noted. Retailers including Walmart have rolled back some food prices, a move that may have helped lower July’s inflation reading, while companies such as Sherwin-Williams are planning price increases to offset higher raw materials and energy costs, CEO Heidi Petz said.

AP writer Anne D’Innocenzio contributed to this report from New York.

Source: Original Article