Lower gas prices helped reduce the year-over-year inflation rate as of the end of July, while inflation-adjusted earnings still trail rising prices by a wide margin, the U.S. Bureau of Labor Statistics (BLS) reported.
The Consumer Price Index (CPI) for all items increased 8.5 percent for the 12 months ending July, a smaller figure than the 9.1-percent increase for the period ending June, but still near a 40-year high.
The gasoline index fell 7.7 percent from June 2022 to July 2022—offsetting increases in the food and shelter indexes.
Core CPI, which excludes food and energy, rose 5.9 percent for the past 12 months, about three times the Federal Reserve's inflation target.
Paychecks Buy Less
High inflation means the buying power of workers' take-home pay has been shrinking. Real (inflation-adjusted) average hourly earnings fell 3 percent, seasonally adjusted, from July 2021 to July 2022, the BLS separately reported.
When factoring in a decline in the average workweek since a year ago, the result is a 3.6 percent drop in real weekly pay for the average hourly worker.
Too Hot or Too Cold?
Former Treasury Secretary Lawrence Summers said he's concerned that despite a slowing in headline inflation, above-average price increases could remain a problem for the foreseeable future, Bloomberg News reported just ahead of the latest CPI report.
The U.S. economy remains in an "overheated" state, as showcased by the July employment and wage figures, Summers said. A "red hot" labor market will mean "constant or even accelerating inflation," he warned.
Stripping out food and commodities such as energy, "we have by every reasonable measure of core inflation running somewhere plus-or-minus 5 percent," Summers said. "That is more than when Richard Nixon put price controls in place. That is not acceptable by any dimension."
Others, however, worry about signs of an economic slowdown. U.S. gross domestic product contracted by 1.6 percent in the first quarter of 2022 and by 0.9 percent in the second quarter, as the U.S. Federal Reserve raised interest rates to fight inflation. Two consecutive quarters of slower economic activity is the technical definition of a recession.
Another possible economic warning sign: the BLS reported on Aug. 9 that nonfarm labor productivity fell 4.6 percent in the second quarter of 2022, as output decreased 2.1 percent although hours worked increased 2.6 percent.
Although the U.S. labor market overall remained tight for many employers, some economic sectors, such as technology, have seen lower labor demand and even workforce reductions this year.
Related SHRM Articles:
Is the U.S. in a Recession? If So, It's Not Like Any We've Seen Before, SHRM Online, August 2022
BLS: Private-Sector Wages and Salaries Rose 5.7% Year Over Year in 2nd Quarter, SHRM Online, July 2022