Has inflation peaked? Maybe, but it could be ‘painfully slow’ to fall

The cooler-than-expected July inflation data fueled hopes that consumer prices peaked earlier this summer after a year of relentless increases that crushed Americans, created a political firestorm for President Biden and forced the Federal Reserve to hike interest rates at the fastest pace in decades.

The consumer price index climbed 8.5% in July from the previous year, a bigger drop from the 9.1% recorded in June than economists projected. On a monthly basis, the index did not move at all as decreases in the cost of oil, gasoline and airfares offset increases in food and rent. 

When excluding more volatile measurements of food and gasoline, prices jumped 5.9% in July, matching the previous month. 

While the slowdown is likely a welcome respite for the Fed as it tries to wrestle inflation under control, experts cautioned that inflation remains painfully high and could be slow to return to pre-pandemic levels around 2%.

INFLATION IS STILL WIPING OUT THE AVERAGE AMERICANS’ WAGE GAINS

“We’re not out of the woods by a long shot,” said Peter Earle, a research fellow at the nonprofit think tank the American Institute for Economic Research. “There’s a long way to go, and a lot can happen before we get back down to that 1.5% to 2.5% annual inflation area that Americans are used to.”

Whether inflation has truly peaked remains deeply uncertain, particularly as COVID-19 and the Russian war in Ukraine continue to disrupt the global economy. Economists have previously predicted that the inflation wave crested, only to be proven wrong the following month.

Still, the expectation is for the torrid pace of price increases to slow in the coming months, though it may be a long descent back to “normal.”

JULY INFLATION BREAKDOWN: WHERE ARE RISING PRICES HITTING AMERICANS THE HARDEST?

“Within a month or two, there will be clearer evidence that inflation has peaked, but also evidence that the decline is painfully slow,” said Seema Shah, the chief global strategist at Principal Global Investors. “Households will unfortunately continue to feel the severe strain of elevated price pressures on their budgets, while wage growth persistence will take its toll on corporate profit margins.”

A customer shops at a supermarket in Millbrae, Calif., Aug. 10, 2022.  (Li Jianguo/Xinhua via Getty Images / Getty Images)

Scorching-hot inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans whose already-stretched paychecks are heavily impacted by price fluctuations. 

Although American workers have seen strong wage gains in recent months, inflation has largely eroded those. Real average hourly earnings decreased 0.5% in July from the previous month when…