Current:Home > NewsHere's where inflation stands today — and why it's raising hope about the economy-DB Wealth Institute B2 Expert Reviews
Here's where inflation stands today — and why it's raising hope about the economy
View Date:2025-01-09 17:39:02
Inflation got a little higher last month — but not enough to set off alarms.
Consumer prices in July were up 3.2% from a year ago, according to data released Thursday, driven in part by rising rent, gas and grocery prices. The increase came after the annual inflation rate had fallen steadily for the previous 12 months.
Despite the rise in the headline rate, details in the report show inflation continuing to moderate. Stocks rallied on the news, which bolstered hopes for a "soft landing," in which the Federal Reserve brings inflation under control without tipping the economy into recession.
Here are four things to know about the latest report on inflation.
What was so encouraging about the latest inflation report?
Although consumer prices rose more in July on an annual basis than they did in June, that shouldn't be read as inflation gaining steam. Rather, it's the result of a single month of flat prices a year ago dropping out of the calculation.
Focusing on more recent months shows price hikes continuing to moderate. In fact, over the last three months, prices have climbed at an annual rate of just under 2%. And some prices are actually coming down.
So what is up — and what is down in price?
Goods overall are getting cheaper, with some exceptions like gasoline and groceries.
Used car prices were down last month, and they are expected to keep falling. Air fares dropped more than 8% in July for the second month in a row.
Rent is still going up, but not as fast as it had been. The economy is also seeing a moderation in the price of services – things like getting your car fixed or going to the dentist.
Service prices are largely driven by wages, so they tend to be stickier than other prices. The big question is whether service inflation will come down enough to bring overall inflation under control.
Why is Wall Street so encouraged about inflation?
The inflation data was within what Wall Street had forecast, and it reinforces hope that inflation is easing.
At the same time, other recent data is showing a sturdier economy than many had expected. The labor market, in particular, is holding up well despite the Fed's aggressive increases in interest rates since last year.
The Dow Jones Industrial Average jumped more than 400 points in the first hour of trading Thursday, although most of those gains were later reversed. The Dow closed up 52 points, or 0.15%.
Stephen Juneau, a senior economist at Bank of America, says he's encouraged about the trajectory of inflation.
"I think the direction of travel right now is really moving in the right direction, and is encouraging on the inflation front," Juneau said.
How could the inflation data impact the Fed's thinking?
Even before Thursday's inflation news, markets were betting the Fed would leave interest rates unchanged at its next meeting after raising rates aggressively since last year.
Oddsmakers see that as even more likely after this report.
But nothing's certain and additional economic data will determine the Fed's next action. The Fed doesn't meet until late September and there are still areas of concern, including higher oil prices which are driving up prices at the gas pump.
How could inflation impact households?
Although inflation is easing, it's still pretty high. Even if the Fed doesn't raise rates higher, they're likely to remain elevated for an extended period.
That has an impact on many people's pocketbooks since households are paying more for mortgages and credit cards, for example.
And the economy may be looking sturdier, but there's still a risk the U.S. could enter a recession.
China's economy, for example, is showing signs of slowing down significantly, which could impact the global economy at a time when the U.S. is taking a tougher stance against the Asian country.
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