Inflation is finally down (a little bit)

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After climbing the longest, steepest hill in decades, inflation finally hit a flat road.

It’s about damn time.

On a monthly basis, prices in July did not budge a lick from June, yesterday’s consumer price index showed. On an annual basis, July prices did jump 8.5%—a rate that’s near 40-year highs—but it’s less than the 9.1% spike in June, and lower than economists forecast. This CPI report is a hopeful sign that inflation is starting to recede.

What kept inflation from raging again

Plummeting gas prices put the team on its back. At one point in June, the national average for a gallon of gas was $5. Now, after 57 straight days of declines, it’s hovering around $4 (still higher than last year’s prices).

But economists don’t typically include gas prices when evaluating underlying inflation because they’re so volatile. A better indicator is “core CPI,” which strips out energy and food costs.

Good news is, core CPI is looking healthier, too. It increased 0.3% in July, much lower than June’s 0.7% gain.

So why might inflation be turning the corner? Experts say it’s a combo of changing consumer appetite from goods → services and easing supply shortages. For instance, Walmart and Target said recently that they actually have too much stuff people don’t want, so they’re planning to mark down prices.

Where we stand now

Inflation might be coming down from its peak, but as anyone who’s heard a pilot say “we’ve begun our initial descent” knows, it takes an excruciatingly long time to land the plane.

Despite easing up, 8.5% inflation is nobody’s idea of healthy price growth, and Americans are still seeing it eat away at their income. Average hourly earnings, when adjusted for inflation, fell 3% in July from last year.

Looking ahead…the Fed will continue increasing interest rates to cool the economy, but given yesterday’s inflation report, those rate hikes might be smaller than once envisioned.