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Saturday January 28th, 2023 12:09PM

Cheaper gas likely slowed high US inflation for a 2nd month

By The Associated Press

WASHINGTON (AP) — A sign that the painful inflation of the past 18 months may be gradually easing could come Tuesday, when the government is expected to report that the acceleration in U.S. prices slowed in August compared with a year ago for a second straight month.

Economists have forecast that the report will show that prices jumped 8.1% from 12 months earlier, down from a four-decade high of 9.1% in June and 8.5% in July, according to data provider FactSet. Sharply lower gas prices are behind much of the decline, along with the costs of used cars, air fares and clothing.

On a monthly basis — the figures the Federal Reserve, the agency charged with fighting inflation, monitors most closely — consumer prices are predicted to have dropped 0.1% in August. It would be the first outright decline in month-over-month inflation since May 2020 and would follow a flat reading in July.

Inflation has escalated families' grocery bills, rents and utility costs, among many other expenses, inflicting hardships on households and deepening gloom about the economy despite strong job growth and historically low unemployment.

Yet the signs that inflation might have peaked could bolster Democrats' prospects in the midterm elections and may already have contributed to slightly higher public approval ratings for President Joe Biden. In his speeches, Biden has generally stopped referring to the impact of high prices on family budgets. He has instead highlighted his administration's recent legislative accomplishments, including a law enacted last month that's intended to reduce pharmaceutical prices and fight climate change.

Still, Republicans blame Biden's $1.9 trillion financial rescue package, passed in March 2021, for contributing to higher prices. The legislation provided a third stimulus check and enhanced unemployment benefits, boosting consumers' ability to spend.

Many mainstream economistsgenerally agree, though they also blame snarled supply chains, Russia's invasion of Ukraine and widespread shortages of items such as semiconductors for fueling inflation. In recent months, though, supply chain backups have eased considerably, and so have chip shortages. Oil prices have dropped to about $88 a barrel, down from a peak of $123 in March.

The average cost of a gallon of gas fell to $3.72 nationwide on Monday, down from just above $5 in mid-June. And many businesses are reporting signs that supply backlogs and inflation are beginning to fade.

Elaine Buckberg, chief economist at General Motors, said the pandemic disruptions to overseas production of semiconductors, which have reduced auto output, “have largely dissipated and we're in a much better position now.” Supply chain disruptions overall, she said, have improved about 80% from the worst days of the pandemic.

Grocery prices have been a particular sore spot for many families. Over the past year, prices of of meat, milk and fruits and vegetables have soared by double-digits. But executives at Kroger, the nation's largest grocery chain, said that falling prices for farm commodities like wheat and corn could slow cost increases for food this year.

“We would expect there to be some flattening out of inflation in the back half of the year,” Gary Millerchip, Kroger's chief financial officer, told investors last week.

Still, despite signs that inflation is easing, the Fed is expected to impose another substantial increase in its benchmark short-term interest rate when it meets next week. Most analysts expect the policymakers to announce a third straight three-quarter-point hike, to a range of 3% to 3.25%.

The Fed's rapid rate increases — the fastest since the early 1980s — typically lead to higher costs for mortgages, auto loans and business loans, with the goal of slowing growth and reducing inflation. The average 30-year mortgage rate jumped to nearly 5.9% last week, according to mortgage buyer Freddie Mac, the highest figure in nearly 14 years.

Chair Jerome Powell has said the Fed will need to see several months of low inflation readings that suggest price increases are falling back toward its 2% target before it might suspend its rate hikes.

The central bank also closely tracks prices that exclude the volatile food and energy categories. So-called “core” inflation has also fallen from its peak, though it is forecast to tick up to 6.1% in August compared with a year ago, from 5.9% in July. On a monthly basis, economists expect core prices rose 0.4% in August — double what the Fed would prefer — up from 0.3% in July.

Even if inflation has peaked, most economists don't expect it to fall back to the Fed's 2% target for at least two years, if not longer. Wages are still rising at a strong pace — before adjusting for inflation — which has elevated demand for apartments as more people move out on their own. A shortage of available houses has also forced more people to keep renting, thereby intensifying competition for apartments.

Rising rents and more expensive services, such as medical care, are also keeping inflation high.

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