In July, inflation slowed much more than economists had predicted due to decreases in gas prices and airfares.
In July, the inflation rate dropped by 0.6% from June, from a year-over-year Consumer Price Index (CPI) of 9.1% to 8.5%. Core inflation, which takes out highly volatile food and fuel costs to give a better sense of trends, was also slower than economists had expected. It only rose 0.3% in July, compared to 0.7% in June.
Other major price drops occurred for airfares, apparel, hotel rooms, and used cars.
In reaction to the positive inflation news, stocks also rose sharply this week. The Dow Jones Industrial Average jumped by 1.6%. The S&P 500 raised 1.9%, its highest level since early May, while the Nasdaq Composite rose 2.5%.
The Federal Reserve is Likely to Slow Interest Rate Increases, But Still Weary of Inflation
The Federal Reserve raised interest rates by 0.75% in both June and July in an effort to curb inflation through slowing spending. While interest rates are expected to be increased again as inflation is still occurring, they will likely be raised by a lesser amount in reaction to slower inflation.
Georgia and Other Southern States Have Been Hit the Hardest by Inflation
Some states have been hit harder by inflation than others, particularly in the Southeast. Metro areas in the South are seeing especially high inflation due to population growth leading to high demand for goods such as gas and food, all while supply chain issues have increased scarcity.
In Georgia, Atlanta in particular, inflation has been much higher than the national average. The inflation rate in the Atlanta area hit a high of 11.5% in June, compared to the national average of 9.1% in the same month.
Still, as prices drop nationwide, they are dropping in the hardest hit areas as well. As of August 10, gas prices in Georgia have dropped to an average of $3.57 per gallon, 62 cents less than the $4.19 per gallon average a month ago.
Inflation Reduction Act to Help Continue Lowering Inflation
As inflation starts to drop, the Senate passed a major piece of legislation on August 7 to further the process, which is expected to pass the House and be signed into law by the end of the week.
The Inflation Reduction Act, which tackles the national deficit, taxes, climate change, and prescription drug costs, will help continue to lower inflation.
The legislation will create a 15% minimum tax for corporations making $1 billion or more in income, which is expected to draw in over $300 billion in revenue to cut the national deficit. The included tax reform will not impact the vast majority of Americans.
The bill also will help lower high prescription drug costs. It allows for the federal health secretary to negotiate certain expensive drug prices each year for medicare and caps the amount that people on Medicare could have to pay annually for out-of-pocket prescription drugs at $2,000. These proposals will make drug costs more affordable for the Americans who need them most and help millions of Americans avoid spikes in their health care costs.