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WASHINGTON: Inflation in the United States slowed more than expected in July as gasoline prices fell at gas stations. While the announcement is still very high profile, it’s a breath of fresh air for Joe Biden in the months leading up to the crucial midterm elections.

The American president welcomed “signs that inflation may begin to moderate” in the White House.

According to the Consumer Price Index (CPI) released Wednesday by the Labor Department, consumer prices rose 8.5% in July on a year-over-year basis.

That’s less than June’s 9.1% – a 40-year high – but also less than the 8.7% expected by analysts.

But the most surprising was the inflation figure for the month: 0.0%. Prices, contrary to all expectations, did not increase at all compared to June (versus a 1.3% increase last month).

“Today we learned that our economy had 0% inflation in July,” Joe Biden said.

“In July, our economy had zero inflation. ZERO PERCENT. There’s definitely more to do, but we’re on the right track,” White House economic spokeswoman Emily Simmons said on Twitter.

Such a slowdown can only be welcomed, because over the past year and a half, price growth has reduced the purchasing power of the population. And, accordingly, the popularity rating of the Democratic president.

His opponents accuse him of inflationary economic policies, including his generous stimulus plan in March 2021, soon after he arrives in the White House.

They renewed their criticism on Sunday as they passed the Climate and Health Inflation Reduction Act in the Senate, which they accuse of creating unnecessary government spending.

Too high

Despite this slowdown, “prices remain too high,” notes Rubila Farooqui, an economist at HFE.

American motorists were certainly able to breathe a sigh of relief, with gas prices down 7.7% compared to June, good news for a country where the vast majority of trips are made by cars, aboard models that often guzzle gas. However, they increased by 44% over the year.

And the prices for accommodation in hotels and plane tickets also fell.

But Americans continued to tighten their belts to find housing and buy food, with food prices experiencing their strongest year-over-year increase since 1979 (+10.9%).

Core inflation, which excludes energy and food prices, however slowed to 0.3% for the month and 5.9% for the year, surprising analysts who had expected an acceleration.

The numbers cheered Wall Street, which opened sharply higher on Wednesday. The dollar, on the contrary, fell.

A sharp increase in the exchange rate is ahead

The question is whether inflation can be sustained without plunging the world’s largest economy into recession after two quarters of GDP contraction.

A moving Fed seeks to trigger a voluntary slowdown in consumption to ease pressure on prices.

To do so, it is raising its key rates, which are currently between 2.25% and 2.50%. This encourages commercial banks to offer more expensive loans to their retail and business clients.

“Combined with robust employment and wage growth, the (inflation) data supports the hypothesis of another aggressive rate hike in September,” Rubila Faruqi said.

The CPI index is a benchmark, in particular, for the indexation of pensions. Another gauge of inflation, the Fed-backed PCE index, showed an acceleration in June to 6.8% on the year.

However, before the pandemic, inflation struggled to reach 2%, which is considered healthy for the economy. But it was accelerated by global supply chain disruptions and labor shortages in the United States as American households consumed wildly.

Added to this was the war in Ukraine, which led to a rapid increase in fuel and food prices.

The US labor market, for its part, returned to its pre-pandemic greatness in July, when the unemployment rate fell to 3.5%. However, there are still nearly two vacancies for every available worker, pushing up wages and fueling inflation.

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