There was “zero inflation last month,” President Joe Biden triumphantly exclaimed on Wednesday. “It underscores the kind of economy we’ve been building.” A few economists shared Biden’s ebullience over the news. “Holy cow,” University of Michigan Professor Justin Wolfers marveled. “There was ZERO inflation last month.” Bloomberg analyst Joe Weisenthal agreed. “Inflation was 0% in July, and we added 500,000 jobs in the month,” he wrote, “and there are people who are insisting we call it a recession.” Because “our economy had 0% inflation in July” and gasoline prices are declining precipitously, White House Press Sec. Karine Jean-Pierre noted, “American families with two cars [save] $106 per month on average.”
In fact, inflation as measured by the rising cost of consumer goods grew at a marginally slower pace in July than it did in June. Last month, the consumer-price index (CPI), which measures the cost of consumer goods, rose by 8.5 percent from a year ago. That’s down from June’s 9.1 percent annualized increase, true enough. And if you exclude goods that are subject to fluctuating prices like food and energy—so-called “core CPI”—prices increased by 0.3 percent last month. While “core CPI” is nearly 6 percent higher than it was last year, it increased in July at the slowest pace since March. That’s a welcome relief, albeit a marginal one.
And yet, a decline in the rate of inflation from its sharpest increase in 40 years is the least we could hope for. Moreover, the conditions that precipitated this drop are inauspicious.
As Jean-Pierre correctly observed, much of the relief Americans are experiencing is attributable to the 7.7 percent decline in gasoline prices. That’s not the result of any new supplies coming online but of a marked drop in the demand for gas. Fuel deliveries have declined to a level unseen since the height of the pandemic in the summer of 2020, meaning the “summer driving season is a bust,” Bloomberg News reported. Gasoline consumption in the U.S. is about 9 percent lower than it was this time last year—a “pretty dramatic drop in demand,” NPR reported. And despite this decline, gas remains 44 percent more expensive today than it was in the summer of 2021. These new costs could only be absorbed for so long. Americans are likely opting out of that discretionary road trip to cover the cost of vital goods, the price of which is still on the rise.
What vital goods? Food, for example. The cost of groceries increased in July by another 1.3 percent from June. Basic foodstuffs are now over 13 percent more expensive than they were a year ago. The cost of electricity increased by 1.6 percent last month, rendering this crucial service over 15 percent more expensive than it was in the summer of 2021. Rents, too, rose by half a percentage point last month. The cost of shelter is now 5.5 percent more expensive than last July. The price of a used car or truck declined in July by a modest 0.4 percent, though one will still cost you over 6 percent more than it did in 2021. But insuring that vehicle will run you 1.3 percent more than it did a year ago. Transportation overall will run you 16 percent more than you were paying last year.
There’s reason to believe that prices will continue to decline into the fall, but that’s due to both seasonal and macroeconomic factors. Economists can argue over whether two consecutive quarters of economic contraction constitutes a recession or not, but Americans are making their feelings on the matter quite plain by putting off discretionary purchases. One study indicated that Americans have, on average, suffered a 15 percent decline in their personal savings over the last year as the basics eat further into their wallets.
The Biden administration may feel compelled to massage the data until it coughs up a positive spin it can promote. But by suggesting that Americans are enjoying any financial relief, the White House runs the risk of appearing out-of-touch, if not brazenly mendacious. The echo chamber that convinced the White House to run with the insulting proposition that inflation has declined to “zero percent” is doing this administration no favors.
An earlier version of this post failed to indicate that the CPI increased in July by 8.5 percent at an annualized rate.