PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

July Inflation and Uncertainty for What Lies Ahead

By at 10 August, 2022, 10:12 am

by Raymond J. Keating –

The U.S. Bureau of Labor Statistics on the morning of August 10 served up the much anticipated inflation data for July. The Consumer Price Index (CPI) for July came in flat, i.e., 0 percent.

Inflation has been raging since early 2021. And even with the 0 percent increase in CPI in July, inflation over the past 12 months still registered a whopping 8.5 percent.

For good measure, when inflation runs hot, it also tends to be quite volatile from month-to-month. So, a good month can be preceded or followed by a bad month. For example, a CPI index increase of 0.3 percent in April 2022 was preceded by a 1.2 percent increase in March and a 1.0 percent increase in May.

Source: Federal Reserve Bank of St. Louis, FRED

Of course, within this report, we see that prices in some areas came down – such as the energy and gasoline indexes in July – and others rose – such as food in July. But inflation is about a sustained increase in the general price level.

Having said all of this, we’re stuck with the uncertainty of what might lie ahead on inflation. And of course, that’s one of the big problems with inflation, i.e., uncertainty, along with rising costs for consumers and businesses, higher interest rates, higher taxes (e.g., the real capital gains tax), and so on.

Of course, it would be a big plus if policymakers did something constructive to help. The “Inflation Reduction Act” that passed the Senate, of course, would have nothing to do with inflation, while, in fact, it actually would work in the wrong direction by raising costs for businesses, and restraining productive investment. It also would help if the Fed focused exclusively on sopping up excess liquidity, and leaving interest rates to the market (though that second part is not going to happen).

Let’s hope that July was a turning point to a period of declining inflation. That would be a major positive for everyone, including entrepreneurs and small businesses.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.

 

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