Slowing Inflation, Cooling Consumer Spending

Recent economic data suggests that inflation may be cooling down in the US. According to the Labor Department, consumer prices rose 3.4% in July from a year ago, down slightly from 3.5% in June.

This moderation in inflation comes as the Federal Reserve is sharply divided over whether it should hike its key interest rate to combat inflation. The Fed kept its rate unchanged at about 3.6%, at a meeting late last month, with a vote of 9-3, three dissenters favoring a rate hike.

Americans unexpectedly cut their spending in July as the boost from government tax refunds faded. Retail sales slipped 0.6% last month, the biggest drop since May 2025, from a revised gain of 0.2% in June. Excluding sales at gas stations and auto dealers, retail sales in July fell 0.2%.

Wholesale inflation dropped last month as gas prices reversed some of their Iran war spike and other costs also cooled. The Labor Department's producer price index rose 4.7% in July from a year ago, down from a much larger 5.5% increase in June. On a monthly basis, wholesale prices were unchanged from June to July.