August 15, 2022 — Inflation Eases from 40-Year Highs


US inflation in July came in at 8.5 percent, down slightly from its 4-decade high of 9.1 percent in June.  Monthly CPI was flat in July after rising for 25 consecutive months, mostly as a result of cheaper energy prices. Core CPI fell to a 0.3 percent increase from a 0.7 percent gain in June. Food prices are expected to moderate as supply chain improvements occur. In the same period, workers saw a 0.5 percent increase in wages.

The Fed continues to face the challenge of curbing inflation without causing the economy to fall into a recession. Fed Chair Jerome Powell says he wants to see clear and convincing evidence that price pressures are easing before slowing or suspending rate increases. The central bank has already lifted benchmark borrowing rates by 2.25 percent in 2022. Core prices remain up 5.9 percent year over year. Price pressures remain strong in part due to a tight labor market, with unemployment matching its lowest rate in 50 years.

Expectations have been for another 0.75 percent rate hike in September, but July’s inflation report may take a bit of the pressure off the Fed. Some analysts are now hoping for a lesser 0.5 percent.  Regardless, rates will continue to move upward for now. Interest rate swaps are a useful tool for locking in the lower rates that are available now.