US Inflation eases as consumer prices rise 6.3% in July

Inflation started rising sharply in the spring of 2021 as the economy rebounded with surprising speed from the short but devastating coronavirus recession a year earlier. Surging customer orders overwhelmed factories, ports and freightyards, leading to delays, shortages and higher prices.

Inflation is a worldwide problem, especially since the Russian invasion of Ukraine drove up global food and energy prices.

In the US, the Commerce Department’s personal consumption expenditures (PCE) index is less well known than the Labour Department’s consumer price index (CPI). But the Fed prefers the PCE index as a gauge of inflationary pressures, partly because the Commerce index attempts to measure how consumers adjust to rising prices by, for example, substituting cheaper store brands for pricier name brands.

CPI has been showing higher inflation than PCE; Last month, for instance, CPI was running at an 8.5 percent annual pace after hitting a four-decade high 9.1 percent in June. One reason: The Labour Department’s index gives more weight to rents, which have soared this year.

The Commerce Department also reported on Friday that Americans’ after-tax personal income rose 0.3 percent from June to July after adjusting for inflation; it has fallen in June. Consumer spending rose 0.2 percent last month after accounting for higher prices.

The Fed was slow to respond to rising inflation, thinking it the temporary result of supply chain bottlenecks. But as prices continued to climb, the US central bank moved aggressively, hiking its benchmark interest rate four times since March.