The Consumer Price Index reached 8.5% in July, compared with a 40-year high of 9.1% in June.
Economists surveyed by The Wall Street Journal had projected annual inflation to fall to 8.7%. That number is still near a 40-year high.
One key force driving inflation has been the price of gasoline, but that has been on a multi-week decline. As of Tuesday, the national average price was about $4 per gallon, about a dollar less than it was in June.
A major reason for the relief at the pump has been aggressive moves by the Federal Reserve to increase interest rates. By making borrowing more expensive, the U.S. central bank hopes to curb demand for goods ands services and therefore put downward pressure on prices.
And it seems to be working, with demand for gasoline falling alongside oil prices, which have declined from more than $120 dollars per barrel in June to about $97 per barrel on Tuesday.
Even with those declines, Federal Reserve officials are signaling they will continue their hard stance against further inflation. For one thing, they face a U.S. economy that continues to add jobs at a breakneck pace. Last week, the Bureau of Labor Statistics said the U.S. economy stacked up another 528,000 new payrolls — a sign that demand for labor remains strong.
And pay for private-sector workers is also climbing at a pace that is putting upward pressure on prices. In the second quarter, wages and salaries grew 5.8% compared with a year earlier, the fastest rate for records tracing back to 2001, although that is still below the current inflation rate.
As part of its effort to rein in high prices, the Fed raised its key rate by 0.75% in late July, its fourth rate-hike of the year.
“My view is that similarly sized [interest rate] increases should be on the table until we see inflation declining in a consistent, meaningful, and lasting way,” Federal Reserve Governor Michelle Bowman said in recent prepared remarks for the Kansas Bankers Association according to CNBC.
San Francisco Fed President Mary Daly said Sunday that the Fed is “far from done” with its work to fight inflation. “Americans are losing ground every day. So the focus has to be on bringing inflation down,” Daly added.
That continued hawkish stance by the Fed is also putting pressure on stock prices.
“Until inflation abates and the Federal Reserve rebalances its priorities away from inflation and toward growth, tempting rallies are likely to remain unsustainable,” Seema Shah, chief strategist at Principal Global Investors, wrote in a note to clients this week.
Rob Wile is a breaking business news reporter for NBC News Digital.
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