Inflation Rate Dropped In July, What Does That Mean? Here's What Experts Say

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News & Politics
Damir Mujezinovic

Record-breaking inflation has had a major impact on the U.S. economy, with working families across the country struggling to make ends meet.

But inflation moderated in July, dropping 0.6 percent since June. The consumer price index (CPI) rose less than expected, while energy and gasoline prices also went down.

These are all encouraging signs, but has inflation really peaked and what does the future hold? Here's what economic experts have to say.

'Welcome Relief'

Speaking with Kiplinger, Aditya Bhave of BofA Securities described these developments as a "welcome relief."

"The Fed's forecast of a soft landing would be greatly improved if we see continued declines in core goods -- particularly durables such as new and used cars and household furnishings -- and a further slowdown in shelter inflation," Bhave explained.

Bhave opined that these numbers prove inflation has peaked, suggesting that he expects the Federal Reserve to adjust its policy in upcoming months.

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Pooja Sriram, the U.S. economist at Barclays Investment Bank, was more cautious than Bhave.

Sriram said it is "too early to say" if the inflation rate will keep dropping, noting that the ongoing reduction was largely driven by deflation in lodging, used cars, and airline fares.

Chief global strategist at LPL Financial Quincy Krosby, meanwhile, said that equity markets "can certainly take a sigh of relief," but it remains unclear if the bottom is in.

"Still, the lower than consensus estimate for headline inflation is undeniably good news for markets and consumers alike," Krosby added.

Has Inflation Peaked?

Has inflation really peaked? Experts appear divided.

Sal Guatieri, the senior economist at BMO Capital Markets, said inflation is "close to peaking," but warned that the reduction will nonetheless be slow.

Brian Price, head of investment management for Commonwealth Financial Network, agreed, saying that we are "seemingly past peak inflation."

"If energy prices continue to fall, then I expect that we'll see inflationary data coming down in future months," Price predicted, noting that "we will likely see long term interest rates fall as well."

Americans Are Pessimistic

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Research suggests that Americans don't feel good about the economy.

For example, in a recent New York Times/Siena College poll, just 10 percent of voters described the economy as "good" or "excellent," while 86 percent described it as "only fair" or "poor."

Seventy-eight percent of respondents in the poll said inflation will be "extremely important" when they cast their ballots in the 2022 midterm elections.

Inflation has been a major political issue for President Joe Biden and the ruling Democratic Party, and Republicans are expected to win both chambers of Congress in November.