It is still premature for the US monetary authorities to celebrate the defeat against high inflation. The annual pace of consumer inflation inched up for the first time in 13 months. The consumer price index rose by 3.2% from a year ago in July, the Bureau of Labor Statistics reported. The Federal Reserve’s monetary policy rests on the dual mandate. Therefore, the central bank endeavors to create economic conditions that achieve stable consumer prices and almost full employment. It goes without saying that the regulator is especially sensitive about inflation. Whereas some countries admit two-digit inflation rates, the US central bank does not tolerate deviations even by a decimal point of a percent. American regulators are scrupulous about their reputation in the world. If the Federal Reserve is not able to bring inflation to target rates, this will deal a blow to its reputation. Inflation has come well off its 40-year highs recorded in mid-2022. Since then, CPI annual rates have been pushed down by the Fed’s aggressive monetary tightening. Nevertheless, the CPI grew by 3.2% in July from a year ago for the first time in 13 months. The headline CPI is still considerably above the 2% official target.
Such acceleration came as no surprise. The actual CPI for July was slightly below the consensus. The Labor Department said that the house price index was mainly to blame for the inflation growth as the index accounts for more than 90% of the whole CPI. Consumer prices skyrocketed to 9.1% in annual terms in June 2022, the fastest rate in 4 decades. The Federal Reserve had to face the challenge and coped well with no sweat. The central bank had to raise interest rates 11 times in the course of the most aggressive and longest campaign. For the time being, the federal funds rate remains in the range of 5.25% to 5.50%, the highest level in the last 22 years.