In some good news for the Federal Reserve and Vice President Kamala Harris , inflation , as measured by the producer price index, declined to 2.2% for the year ending in July.
The numbers were released on Tuesday by the Bureau of Labor Statistics. The decline is welcome news for the economy, which has been strained by inflation.
The downward dip was expected. Most forecasters anticipated annual inflation would fall from 2.6% to 2.3%, so the numbers bode well for the Fed and consumers.
On a month-to-month basis, the wholesale price index rose 0.1%.
"Producer price increases cooled this month which is good news for the Fed’s inflation fight, but there is no PPI deflation, so Fed officials do not have to rush to judgment and bring rate cuts forward because the economy is headed downhill," said Chris Rupkey, chief economist at FWDBONDS.
The latest inflation data comes a week before Fed Chairman Jerome Powell gives his annual address on monetary policy in Jackson Hole, Wyoming. Traditionally, such speeches are used to unveil new ideas and lay the foundation for the year ahead in Fed policy.
The producer price index is not as closely watched as the consumer price index, which is the most-tracked inflation gauge. The new CPI numbers for July are set to be released on Wednesday, but in June, CPI inflation fell by 0.3 points to 3%.
That 3% level represented three straight months of disinflation.
The Fed, which has raised interest rates to their highest level since the turn of the century, will also be pleased to see inflation continuing its descent toward the central bank’s 2% target. Continued declines may allow the Fed to cut rates sooner than expected, which would be good news for consumers and the labor market.
The likelihood of rate cuts increased greatly after the most recent employment report as well. After the lackluster jobs report, investors think the Fed will make a big cut at its next meeting in September.
The economy added 114,000 jobs in July, far fewer than expected, and the unemployment rate rose two-tenths of a percentage point to 4.3%, the Bureau of Labor Statistics reported. That was a big miss from expectations that more jobs would be added and the unemployment rate would remain at 4.1%.
The report also triggered a recession indicator called the Sahm rule. That is when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. The indicator has signaled the start of all postwar recessions.
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When the Fed conducts monetary policy, it typically moves rates gradually by a quarter of a percentage point each meeting. But the surprising jobs report put some pressure on the central bank and Chairman Jerome Powell for an outsize rate revision, perhaps by half a percentage point.
The economy has been the No. 1 issue on voters’ minds this election cycle, with Republicans hammering Harris for the country’s too-high inflation by tying her to the Biden administration’s stewardship of the economy.
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