Home WORLD AMERICA Clearing up on the inflation front in the United States

Clearing up on the inflation front in the United States

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Consumer prices rose 8.5% in July year on year, according to the Consumer Price Index (CPI) released Wednesday by the Labor Department, after rising 9.1% in June, a record for 40 years.

This is better than expected, since inflation was expected at 8.7% in July, according to MarketWatch’s consensus.

And over a month, inflation is even zero. This means that, against all expectations, prices have not increased compared to June, while inflation rose to 1.3% last month compared to May.

Inflation remains at a very high level all the same, which could prompt the American central bank (Fed) to raise its interest rates sharply again at its next meeting in September.

These figures have made the happiness of Wall Street, which was preparing to open sharply higher at the time of their publication.

The dollar, on the other hand, was down against major competing currencies. Around 8:45 a.m., shortly before the opening of the markets, the greenback lost 1.21% against the European currency, at $1.04 for one euro, and lost 1.32% at $1.22 for one. pound sterling.

Good news for Joe Biden

The US President hailed signs that inflation may start to moderate.

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% inflation in July”,”text”:”I just want to give a number, zero. Today we learned that our economy had 0% inflation in July”}}”>I would just like to give a number, zero. Today we learned that our economy had 0% inflation in Julyrejoiced Joe Biden, who spoke from the White House.

For a year and a half, prices had hardly stopped climbing in the United States, eroding the purchasing power of households and, by extension, the popularity rating of the Democratic president.

His opponents accuse him of having an inflationary economic policy, due in particular to his generous stimulus plan in March 2021, just after his arrival at the White House.

Republicans reignited their criticism on Sunday, with the adoption in the Senate of theInflation Reduction Act (the so-called Inflation Reduction Bill), which they instead accuse of generating unnecessary public spending.

The Fed’s challenge

The question now is whether it will be possible to bring inflation down sustainably, without plunging the world’s largest economy into recession, after already two quarters of contraction in gross domestic product.

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The Fed is seeking to induce a voluntary slowdown in consumption, to ease the pressure on prices.

It has thus raised its key rates four times, now between 2.25 and 2.50%. The rise encourages commercial banks to offer their retail and business customers loans with higher interest rates.

And the longer inflation stays high, the more the Fed will raise rates.

Inflation was struggling, however, before the pandemic, to reach the 2% considered healthy for the economy. But it accelerated with global supply chain disruption and labor shortages in the United States, as American households consumed frantically.

Added to this was the war in Ukraine, which sent fuel and food prices soaring.

Especially since the American labor market remains very dynamic. In July, the unemployment rate fell back to 3.5%, as before the pandemic.

But there are still nearly two vacancies for every available worker, pushing wages up and contributing to inflation.

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