U.S. inflation moderates in July, but prices remain sky-high

WASHINGTON, Aug. 10 (Xinhua) -- U.S. inflation moderated in July, but prices remain sky-high and continue to put a strain on millions of American families.

The Consumer Price Index (CPI) rose 8.5 percent in July from the same month last year, marking a slowing pace from the previous month's record 9.1 percent increase, according to the Bureau of Labor Statistics' (BLS) monthly report released Wednesday.

The drop was due mostly to a decline in skyrocketing gasoline prices, and was lower than the 8.7-percent increase expected by economists surveyed by Dow Jones.

But despite the good news, sky-high inflation continues to put enormous financial pressure on millions of American families who struggle to make ends meet.

Moreover, the food index rose at the fastest 12-month clip -- 10.9 percent -- since May 1979, according to the BLS.

Brookings Institution Senior Fellow Barry Bosworth told Xinhua the moderation of inflation reduces the need for another large interest rate increase, but one month does not establish a trend.

The economy remains very exposed to adverse developments in energy markets. The increases in food prices and continued rent inflation were both areas of concern, Bosworth said.

"The U.S. Federal Reserve will still lean toward further-but smaller-rate increases. It has caught up with reality, but rate reductions are far in the future," Bosworth said.

"Today's encouraging consumer price numbers suggest that inflation has very likely peaked and will continue to come down in a sustained manner," Desmond Lachman, senior fellow at the American Enterprise Institute, told Xinhua.

However, the figures also suggest that progress on the inflation front all too likely will result in a hard economic landing, Lachman said.

One reason is the considerable economic weakness abroad and another is that the Fed likely will keep raising interest rates by 75 basis points -- even as the economy is weakening and inflation is peaking, Lachman said.

Critics of rate raising described the policy as a ham-fisted approach to controlling inflation as the policy destroys demand and weakens the economy in a bid to tamp down inflation.

Some critics said they'd rather see the administration pursue a policy that boosts supply.

But while gasoline prices have come down somewhat, experts noted that there are not many other areas in which supply can be boosted in the short term.

"The Fed has to be cautious with its rate hikes. These are a very blunt tool for attacking inflation," Dean Baker, senior economist at the Center for Economic and Policy Research, told Xinhua.

Slowing inflation comes just a few months from the midterm elections, in which many experts are predicting a Republican wave.

Clay Ramsay, a senior research associate at the Center for International and Security Studies at the University of Maryland, told Xinhua: "Gasoline went down, but food and shelter went up. This pattern is not good enough to ease people's experience that their household costs are unpredictable."

Brookings Institution Senior Fellow Darrell West, meanwhile, believed that the slowing of inflation is "welcome news for Democrats."

"If that trend continues, it will help them make the case they are improving the plight of the working class and deserve future support. Making progress on this economic issue is absolutely vital for Democrats to improve their chances in November," West told Xinhua.

Christopher Galdieri, assistant professor at the Saint Anselm College, said one of the biggest drivers of voter behavior is the state of the economy, "particularly its impact on individuals' pocketbooks."

"So a slowdown in inflation rates is going to help the party in power," Galdieri told Xinhua.