WASHINGTON (AP) — Over the past year, inflation in the United States has tumbled from 9% all the way to 3%, softening most of the price pressures that have gripped the nation for more than two years.

Now comes the hard part.

Squeezing out the last bit of excess inflation and reducing it to the Federal Reserve’s 2% target rate is expected to be a much harder and slower grind.

A measure called “core” inflation, which excludes volatile food and energy prices, is even higher than overall inflation. It, too, seems likely to slow only gradually. The Fed pays particular attention to core prices as a signal of where inflation might be headed. In June, core prices were up 4.1% from a year earlier, according to the Fed’s preferred gauge.

“We see some challenges in getting that all the way back to 2% quickly,” said Michael Hanson, senior global economist at J.P. Morgan.

The stickiness of inflation could endanger the possibility that the Fed will achieve a rare “soft landing” — a scenario in which it manages to slow inflation down to its target level through higher interest rates without derailing the economy. If inflation were to remain elevated for too long, the Fed might feel compelled to further raise its key rate from its current 5.4%, a 22-year high. Most economists say they think the central bank is done hiking, but only if inflation continues to cool.

At the same time, the Fed has acknowledged that inflation pressures have eased significantly over the past year. Encouragingly, that slowdown has occurred even while the economy has continued to expand and employers have steadily hired at a healthy pace.

On Thursday, when the government will issue inflation data for July, economists expect it to show a slight pickup in year-over-year inflation to 3.3%. It would be the first such increase after 12 months of declines.

In part, any rebound in annual inflation for July will reflect higher gas prices. Unless they ease, gas prices could keep overall inflation above 3% through the end of the year. The national average pump price has jumped about 30 cents, to $3.83, in the past month, partly because the cost of oil has risen.

One obstacle in bringing inflation down to the Fed’s 2% target is that the price slowdown so far has reflected mainly relatively painless changes not likely to be repeated. Until last month, for example, gas prices had already plunged from a peak national average of $5. And supply-chain snarls that had swollen the prices of cars, furniture, appliances and other physical goods have mostly unwound. The cost of long-lasting manufactured goods actually declined slightly in June from a year ago.

Another factor is that prices had soared in the first half of 2022 before slowing in the second half. So any increase in July would have the effect of boosting the year-over-year inflation rate.

What’s now sending prices up is mostly the cost of services — everything from dental care and auto insurance to restaurant meals and summer concerts. Those costs mostly reflect healthy wage gains for workers, which are often passed on to customers in the form of higher prices.

“Energy prices are off, commodity prices off, core goods fell,” said Kristin Forbes, an economist at MIT and a former member of the Bank of England’s interest-rate setting committee. “That’s the quick, easy stuff. What’s left is this underlying wage-service inflation. And that’s the part that’s harder to slow down and will take take longer.”

Many employees, especially in the economy’s service sector, could push for further raises in the coming months. With labor shortages still a problem for service industries, workers have leverage to demand higher pay. For most Americans, pay gains have trailed inflation over the past two years.

Higher pay is one key issue driving strikes among Hollywood writers and actors. It was also a focus of the Teamsters union in its negotiations with UPS, which led to large pay gains. The United Auto Workers is also pushing for robust raises in its talks with U.S. automakers.

Hanson, of J.P. Morgan, notes that measures of health insurance costs will start to rise this fall because of quirks in how the government measures them. And auto insurance and repair costs have been surging. A key reason is that vehicle prices soared after parts shortages developed when the pandemic erupted; costlier cars are more expensive to fix and insure. Auto insurance prices have soared nearly 17% in the past year.

As a result, economists generally expect core prices, under the Fed’s preferred measure, to still rise at a 3.5% annual pace by year’s end — far above its 2% target. The Fed’s latest forecasts show that its policymakers expect core inflation to still be 2.6% at the end of 2024.

Still, there are some hopeful signs that hiring and wages are slowing, which would cool inflation over time. On Friday, the government reported that employers added 187,000 jobs in July, a solid total but still reflective of a slowdown: Job growth over the past three months has averaged only about half the pace of the same period in 2022. And wage growth slipped to 4.6% in the April-June quarter, the government said, the slowest pace in a year and a half.

“That trajectory tells us where things will go in the next 12 months,” said Skanda Amarnath, executive director of Employ America, an advocacy group.

At his most recent news conference, Fed Chair Jerome Powell sounded some cautious but hopeful notes about the prospect of a soft landing.

“I wouldn’t use the term optimism about this yet,” he said. “I would say though that there’s a pathway….We’ve seen so far the beginnings of disinflation without any real costs in the labor market. And that’s a really good thing.”

Yet a defining characteristic of the post-pandemic economy has been resilience, with consumers in particular showing a surprisingly persistent willingness to spend. Some economists worry that it will take a sharp rise in unemployment to reverse that trend and finally conquer inflation.

The Fed has already been coming under some criticism for sharply raising rates and potentially putting the job market at risk. Sen. Elizabeth Warren, a Massachusetts Democrat, wrote Powell before the Fed met last month and urged him to forgo another rate increase. The central bank, though, went ahead with its 11th rate hike since March 2022.

“The Fed’s aggressive rate hikes disproportionately threaten Black workers and their families and risk fully reversing the extraordinary labor market gains we have seen,” Warren, a frequent Fed critic, wrote.

With political pressure on the Fed rising, Powell and other officials may soon see the precipitous drop in inflation in the first half of this year as having been the easy part.

“The Fed has got lucky so far in what it’s gotten,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard. “Most of the decline in inflation was going to happen anyway. They really own the part that’s to come.”

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WASHINGTON (AP) — Squeezed by painfully high prices for two years, Americans have gained some much-needed relief with inflation reaching its lowest point since early 2021 — 3% in June compared with a year earlier — thanks in part to easing prices for gasoline, airline fares, used cars and groceries.

The inflation figure the government reported Wednesday was down sharply from a 4% annual rate in May, though still above the Federal Reserve’s 2% target. From May to June, overall prices rose 0.2%, up from just 0.1% in the previous month but still comparatively mild.

Even with Wednesday’s better-than-expected inflation data, the Fed is considered all but sure to raise its benchmark rate when it meets in two weeks. But with price increases slowing — or even falling outright — across a range of goods and services, many economists say they think the central bank could hold off on what had been expected to be another rate hike in September, should inflation continue to cool.

“It takes the second hike off the table, if that trend continues,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “They’re probably on hold for the rest of the year.”

On Wall Street, investors cheered the encouraging news, sending stock and bond prices higher. Investors have been eagerly anticipating the eventual end of the central bank’s rate increases.

The Fed has raised its benchmark rate by a substantial 5 percentage points since March 2022, the steepest pace of increases in four decades. Its expected hike this month will follow the central bank’s decision to pause its rate increases last month after 10 consecutive hikes.

Wednesday’s inflation data may lift hopes that the Fed will achieve a difficult “soft landing,” in which price increases fall back to 2% without causing a spike in unemployment or a deep recession. Last week, the government reported solid hiring in June, though it slowed compared with earlier this year. The unemployment rate ticked lower, from 3.7% to 3.6%, near a half-century low.

When the Fed began raising its key rate a year ago, many economists expected that unemployment would have to rise significantly to curb inflation. Though inflation isn’t yet fully tamed, some economists say they think it can fall to a level near the Fed’s 2% target earlier than they had expected.

Excluding the volatile food and energy prices, so-called core inflation was lower last month than economists had expected, rising just 0.2% from May to June, the smallest monthly increase in nearly two years. Compared with a year ago, core inflation does remain relatively high, at 4.8%, but down from a 5.3% annual rate in May.

In just the past two months, overall inflation, measured year over year, has slowed from nearly 5% in April to just 3% now. Much of that progress reflects the fading of spikes in food and energy prices that followed Russia’s invasion of Ukraine last spring. Inflation is now significantly below its peak of 9.1% in June 2022.

Gas prices have fallen to about $3.54 a gallon on average, nationally, down from a $5 peak last year. Grocery prices have leveled off in the past three months and were unchanged from May to June. Milk prices, having dropped for a third straight month, are down 1.9% from last year.

Eggs, which had skyrocketed last year after an outbreak of avian flu decimated chicken flocks, have dropped to $2.22 a dozen — down more than 7% just in the past month. Egg prices had peaked at $4.82 in January, according to government data. Still, they remain above the average pre-pandemic price of about $1.60 a dozen.

Economists say inflation isn’t likely to keep falling at such a rapid pace. On a 12-month basis, inflation could even tick up in the coming months now that big drops in gas prices — they’re down 27% in the past year — have been achieved..

In particular, airfares plunged 8.1% just from May to June, hotel costs 2% and car rental prices 1.4% — sharp drops that aren’t likely to be replicated.

And the cost of some services are still rising and likely to stay high this year, potentially keeping core prices elevated. Auto insurance costs, for instance, have soared, and are up 16.9% from a year ago. Americans are driving more than during the pandemic and causing more accidents. Insurance is also costlier because vehicle prices are much higher than before the pandemic, and cars are therefore more valuable.

Restaurant prices are still moving up, having risen 0.4% from May to June and nearly 8% from a year earlier. Restaurant owners have had to keep raising wages to find and retain workers, and many of them are passing their higher labor costs on to their customers by raising prices.

Chrishon Lampley, owner of the wine brand Love Cork Screw, says more expensive restaurant prices have led her to cut back on taking prospective customers out for meals. Instead, she gives potential wine buyers small gifts.

The cost of printing labels for her wine bottles has nearly doubled in the past year, Lampley said, mostly because of higher labor costs. She’s reduced her travel costs as a result. Lampley now chooses extended-stay hotels with kitchens rather than regular hotels, and she rents smaller cars even though she often carts around cases of wine.

“Everything has just become way more frugal,” she said. “I’ve got to pull back.”

Chair Jerome Powell and other Fed officials have focused their attention, in particular, on chronically high inflation for restaurant meals, auto insurance and other items in the economy’s sprawling service sector. It’s a big reason why several Fed policymakers were still talking earlier this week about the likelihood of two more rate hikes.

“We’re likely to need a couple more rate hikes over the course of this year to really bring inflation back into … a sustainable 2% path,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said on Monday.

At the same time, Daly said she was “holding myself to … extreme data dependence” and could shift her thinking based on incoming reports. There will be two more inflation reports — for July and August — before the Fed meets in September.

Some drivers of higher prices are likely to keep fading and pull down inflation in the coming months. Used car prices sank 0.5% from May to June, after two months of big spikes. New-car prices, too, have begun to ease as a result, and were unchanged from May to June.

In June, used vehicle prices paid by dealers were down 5.6% from a year earlier, helping to cool inflation, according to data gathered by Black Book, which monitors prices. But used vehicles are still comparatively pricey: Dealers are paying almost 70% more for them than in June 2019, before the pandemic began. The average list price offered by dealers to consumers was $28,850 last month.

Alex Yurchenko, chief data officer for Black Book, said he expects prices paid by consumers to keep falling through year’s end, contributing to declining inflation. But they aren’t expected to drop dramatically. Typically, prices fall in the second half of the year, then rise in the spring as the car-buying season begins.

“We expect a return to some kind of normality,” Yurchenko said.

Supplies of new vehicles are rising, and prices are dropping slightly. As a global shortage of computer chips wanes, automakers have accelerated production. New-vehicle prices peaked in December but fell 3% to $45,978 last month, according to estimates from J.D. Power.

And rental costs, a huge driver of inflation, are expected to keep declining, as builders continue to complete the most new apartment units in decades. Rising housing costs have driven more than two-thirds of the increase in core inflation in the past year, the government said, so as that increase fade it should steadily lower overall inflation.

Prices first spiked two years ago as consumers ramped up their spending on items like exercise bikes, standing desks and new patio furniture, fueled by three rounds of stimulus checks. The jump in consumer demand overwhelmed supply chains and ignited inflation.

Many economists have suggested that President Joe Biden’s stimulus package in March 2021 intensified the inflation surge. At the same time, though, inflation also jumped overseas, even in countries where much less stimulus was put in place.

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WASHINGTON (AP) — Consumer price increases in the United States likely slowed sharply last month, extending a steady easing of inflation over the past year. But a gauge of underlying prices may still reflect persistent inflation pressures.

Prices are forecast to have risen 4.2% in May from a year earlier, well below the 4.9% year-over-year increase in April, according to a survey of economists by the data provider FactSet. And measured from April to May, prices are expected to have increased only 0.1%, compared with the previous month’s 0.4% increase.

Yet any slowdown in inflation is unlikely to convince the Federal Reserve’s policymakers that they’re close to curbing the high inflation that has gripped the nation for two years. The Fed tends to focus on “core” prices, which exclude volatile food and energy costs and generally provide a clearer view of inflation. And the data that the government will release Tuesday will likely show much less improvement in core prices.

Instead, core prices are expected to have risen by an uncomfortably high 0.4% from April to May — the sixth straight month of increases of that pace or higher. Measured year over year, though, core inflation is forecast to have slowed from 5.5% to 5.3%.

The stubbornness of underlying inflation reflects a fundamental challenge for the Fed: The economy has steadily defied long-standing forecasts for a recession, dating back more than a year. Instead, businesses have kept hiring at a healthy pace, average paychecks are climbing and workers are freely spending their larger wages.

Though a resilient economy is great for households and businesses, it may also be helping fuel chronically high inflation. Some economists argue that companies are keeping prices high to maintain larger profit margins. The nation’s consumers might have to pull back, en masse, before most businesses will reduce prices. In the meantime, steadily robust hiring is allowing Americans, as a whole, to keep spending.

Tuesday’s inflation figures will arrive just as Fed officials begin a pivotal two-day meeting, after which they are expected to leave interest rates alone after 10 straight hikes dating back to March 2022. On Wednesday, the central bank will likely announce that it’s skipping a rate increase but perhaps also hint that it will resume raising its key rate as soon as July.

Top Fed officials have said they’re leaning toward a so-called “skip” because they want to take time to assess how their rapid rate hikes have affected inflation and the overall economy. The Fed has raised its benchmark rate by a hefty 5 percentage points over the past 15 months — the fastest pace of rate increases in four decades.

Those hikes have led to much higher costs for mortgages, auto loans, credit cards and business borrowing. The Fed’s goal is to slow borrowing and spending, cool the economy and tame inflation — without causing a deep recession. It’s a notoriously difficult task.

There are some signs that the Fed’s efforts are having the desired effect. Inflation is expected to take another big step down in the June figures that will be reported next month. Price growth could slide as low as 3.2% from a year earlier, according to some economists’ estimates. That would be significantly below inflation’s peak of 9.1% in June 2022, the highest level in four decades.

Yet any sharp declines in May and June will in part reflect the fact that prices soared in both those months last year. As those months drop out of the year-over-year inflation calculations, they are replaced with smaller monthly gains. The effect can sharply lower measures of annual inflation.

Still, core prices are expected to stay high in May, driven up by another jump in used car prices and steady increases in rental costs. Used car prices soared 4.4% just from March to April. Economists expect another increase, though not quite as large, from April to May.

Alan Detmeister, an economist at UBS, projects that higher rents and used car prices will account for about three-quarters of the May increase in core inflation. Yet he thinks both items will likely decline in the coming months. Wholesale prices of used cars have already started dropping. And rental costs are expected to fall because apartment vacancy rates have climbed.

“Inflation is becoming narrower,” Detmeister said. “As those used car numbers come off, as those rents come off, that will be a big driver of inflation coming down.”

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WASHINGTON (AP) — U.S. consumer price increases eased slightly from January to February but still pointed to an elevated inflation rate that is posing a challenge for the Federal Reserve at a delicate moment for the financial system.

The government said Tuesday that prices increased 0.4% last month, just below January’s 0.5% rise. Yet excluding volatile food and energy costs, so-called core prices rose 0.5% in February, slightly above January’s 0.4% gain. The Fed pays particular attention to the core measure as a gauge of underlying inflation pressures.

Even though prices are rising much faster than the Fed wants, some economists expect the central bank to suspend its year-long streak of interest rate hikes when it meets next week. With the collapse of two large banks since Friday fueling anxiety about other regional banks, the Fed, for now, may focus more on boosting confidence in the financial system than on its long-term drive to tame inflation.

That is a sharp shift from just a week ago, when Chair Jerome Powell suggested to a Senate committee that if inflation didn’t cool, the Fed could raise its benchmark interest rate by a substantial half-point at its meeting March 21-22. When the Fed raises its key rate, it typically leads to higher rates on mortgages, auto loans, credit cards and many business loans.

When measured against prices a year ago, inflation has been easing for eight months. In February, consumer prices climbed 6% from 12 months earlier, down from January’s 6.4% year-over-year increase and well below a recent peak of 9.1% in June. Yet it remains far above the Fed’s 2% annual inflation target. Core prices in February rose 5.5% from 12 months ago, down slightly from 5.6% in January.

Nearly three-quarters of last month’s price increase was driven by housing costs. But most economists expect rental cost increases to slow in the coming months as more apartment buildings are constructed and new leases are signed at lower price levels. Such a decline could further slow inflation.

Prices in the economy’s sprawling service sector continued to accelerate last month. Restaurant prices rose 0.6% from January to February. Auto insurance jumped 0.9%, hotel costs a dramatic 2.3%.

Air fares, after easing for several months, soared 6.4% just in February and are up 27% from a year ago. The Fed is heavily focused on services, which are labor-intensive and whose price increases are driven in large part by higher wages. Labor shortages in many services industries have led to sharp wage increases.

Clothing costs rose 0.8% last month. New car prices ticked up just 0.2% for a second straight month. Used car prices fell 2.8%, the eighth straight monthly decline.

Consumers are getting a bit of relief at the grocery store. Food prices rose 0.3% in February, the smallest monthly gain in nearly two years, though they’re still up more than 10% from a year ago.

The price of eggs, which have soared 55% from a year earlier, actually dropped 6.7% just in February.

“These data support a quarter-point rate hike” at the Fed’s meeting next week,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a research note. “The decision ultimately will depend not only on the economic data but also financial stability concerns, which could keep the Fed on the sidelines next week.”

Across the country, persistently high inflation is still pressuring many consumers.

Mani Bhushan, who owns four Taco Ocho restaurants in the Dallas area, has struggled to keep up with sharply higher prices for eggs, chicken, flour and black beans. He has also had to raise wages by about 30% to attract and keep the workers he needs.

“You get hit from every side,” he said. “We don’t make much profit anymore.”

To cover his higher costs, Bhushan raised some of his prices last week after having done so four months ago. He plans to raise prices again in May unless food prices ease further.

For the Fed, it’s not yet clear whether it will keep raising rates at its next meeting to combat inflation.

Jan Hatzius, chief economist at Goldman Sachs, said Goldman now thinks the Fed’s policymakers will pause their rate increases next week. Goldman had previously predicted a quarter-point hike. In a note to clients, Hatzius noted that the Fed, for now, appears even more focused on calming the banking sector and the financial markets than on fighting inflation.

“We would be surprised if, just one week after going to great lengths to support financial stability, policymakers risked undermining their efforts by raising interest rates again,” Hatzius wrote in a separate note Monday.

If the Fed does pause its rate hikes this month, Hatzius predicted, it will likely resume them when it next meets in May. Ultimately, he still expects the Fed to raise its key rate, which affects many consumer and business loans, to about 5.4% this year, up from the current 4.6%.

The Fed may get some unintentional help in its inflation fight from the aftereffects of the collapse of Silicon Valley Bank and New York-based Signature Bank. In response, many small and medium-size banks may pull back on lending to shore up their finances. A lower pace of lending could help cool the economy and slow inflation.

The next day, testifying to a House committee, Powell cautioned that no final decision had been made about what the Fed would do at the March meeting. Still, on Friday, the government reported that employers added a robust 311,000 jobs last month. It was a potential sign of continued high inflation, and it led to predictions of a half-point hike at the Fed’s meeting next week.

Later that day, though, Silicon Valley Bank failed, thrusting an entirely new set of concerns onto the Fed.

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WASHINGTON (AP) — The pace of consumer price increases eased again in January compared with a year earlier, the latest sign that the high inflation that has gripped Americans for nearly two years is slowly easing.

At the same time, Tuesday’s consumer price report from the government showed that inflationary pressures in the U.S. economy remain stubborn and are likely to keep prices elevated well into this year. Rising costs will also keep pressure on the Federal Reserve to raise its benchmark interest rate further and to keep it there through year’s end.

Consumer prices climbed 6.4% in January from a year earlier, down from 6.5% in December. It was the seventh straight year-over-year slowdown and well below a recent peak of 9.1% in June. Yet it remains far above the Federal Reserve’s 2% annual inflation target.

And on a monthly basis, consumer prices increased 0.5% from December to January, much higher than the 0.1% rise from November to December. More expensive gas, food and clothing drove up last month’s figure.

The data show that while inflation is fading, it is likely to do so slowly and unevenly. The government also incorporated annual revisions of its methods into January’s inflation report, which caused monthly increases in the final three months of last year to be higher than originally reported. Combined with January’s price figures, the slowdown in inflation since the fall is now more gradual than it seemed just a few weeks ago.

Excluding volatile food and energy costs, so-called “core” prices increased 0.4% last month, up from 0.3% in December. Core prices rose 5.6% from a year ago, down just a tick from December’s 5.7%.

In the past three months, core prices have risen at a 4.6% annual rate, which is below the year-over-year number and suggests that more declines are coming. But that figure is up from 4.3% in December.

“These things never happen in a straight line,” said Tiffany Wilding, an economist at PIMCO, an asset management firm. “But I think the overall balance of evidence suggests that we are starting to see inflation move in the right direction.”

Fed Chair Jerome Powell said last week that the “process of getting inflation down has begun.”

But “this process is likely to take quite a bit of time,” he added. “It’s not going to be, we don’t think, smooth, it’s probably going to be bumpy.”

The Fed has aggressively raised its benchmark interest rate in the past year to its highest level in 15 years in its drive to get rampaging inflation under control. The Fed’s goal is to slow borrowing and spending, cool the pace of hiring and relieve the pressure many businesses feel to raise wages to find or keep workers. Businesses typically pass their higher labor costs on to their customers in the form of higher prices, thereby helping fuel inflation.

So far, most of the slowdown in inflation reflects freer-flowing supply chains and earlier declines in gas prices. Those factors have sharply reduced inflation in goods, including cars, furniture and toys. Overall core goods prices ticked up just 0.1% in January, after declining for three months.

Furniture prices were unchanged in January for a second straight month and are up just 2.2% from a year ago. Average new car prices rose just 0.2% last month, though they’re still 5.8% more than last January.

Used car prices, which had soared in 2021 and early last year amid widespread supply disruptions, dropped 1.9% last month, the seventh straight decline. They’re now 11.9% lower than they were a year ago.

Gas prices rose 2.4% in January, the government said, with prices averaging $3.50 a gallon nationwide by the end of last month. Prices at the pump have since dropped back to $3.41 as of Tuesday, according to AAA.

Food prices jumped 0.5% from December to January, defying hopes for a smaller increase. Cereals and bread products became costlier. And egg prices jumped 8.5% just in January and have skyrocketed 70% in the past year. Those prices have been driven up by more expensive feed and an avian flu epidemic that has devastated chicken flocks.

More expensive food, along with other rising costs, has caused Pat DeCandia, a 65-year-old retired teacher from Ridgefield, New Jersey, to change her buying habits. She will no longer buy specialty items like smoked salmon from Costco.

“I can do without that,” she said.

DeCandia is buying more store label items, which are typically cheaper. For mayonnaise, she is skipping Hellmann’s and now buys a store label brand at ShopRite called Bowl & Basket. And whenever anything is on sale, she stocks up.

Though goods prices across the economy have come down, services costs, including housing, remain chronically high. Rental costs jumped again in January, up 0.7%, and are 8.6% more than a year ago.

Housing costs account for fully 2.75 percentage points of the 6.4% yearly inflation increase, according to calculations by Eric Winograd, an economist at AllianceBernstein. But Powell and other economists expect housing costs to start declining by the middle of this year. Market rates for new rental leases have been easing since fall, and the Fed expects those lower costs to gradually feed into the government’s data.

Excluding housing, however, the cost of other services are still accelerating. Auto insurance prices jumped 1.4% in January and are nearly 15% higher than a year ago. Recreation, which includes movie tickets and veterinary costs, rose 0.7% last month and is up 5.8% from a year earlier.

The Fed is particularly focused on the cost of services excluding housing. That is because the prices of labor-intensive services tend to be especially difficult to curb. With the strong job market compelling employers to raise pay to attract and keep workers, employers are often passing on those higher labor costs to their customers by charging more.

Kathy Bostjancic, chief economist at Nationwide, calculates that in January, services prices excluding housing were 6.1% higher than they were a year earlier, barely below December’s figure of 6.2%. The slow decline reflects the fact that the Fed’s rate hikes — eight since March of last year — have had no discernible effect on America’s job market, which remains exceptionally strong.

The unemployment rate h as dropped to 3.4%, the lowest level in 53 years, and job openings remain high. The strength of the job market has, in turn, helped support consumer spending, which underpins the bulk of the U.S. economy. With unemployment so low, average wages are rising at a brisk pace of about 5% from a year ago.

Many economists expect inflation to fall to roughly 4% later this year. But it could plateau at that point so long as hiring and wage gains remain vigorous. The Fed might then feel compelled to keep borrowing rates high well into 2024 or even raise them further this year.

A key question for the economy this year is whether unemployment would have to rise significantly to achieve a slowdown in wage growth. Powell and other Fed officials have said that curbing high inflation would require some “pain” for workers.

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WASHINGTON (AP) — A high-profile report on inflation to be released Tuesday morning could show another month of cooling prices and add to evidence that the pressures on American households are gradually easing.

A milder inflation report would also encourage optimism that the Federal Reserve will suspend its interest rate hikes sometime early next year.

Economists have forecast that consumer prices rose 7.3% in November compared with a year ago, according to the data provider FactSet. Though still uncomfortably high, that would fall well below a recent peak of 9.1% in June and would amount to the fifth straight year-over-year slowdown in inflation.

Gas prices have dropped from their mid-summer highs and are lower than they were a year ago. Many supply chains have unsnarled, helping lower the costs of imported goods and parts. Prices for lumber, copper, wheat and other commodities have also fallen.

Fed officials and economists will focus more on Tuesday’s month-to-month inflation figures for a better read on where prices might be headed. Prices are expected to have risen 0.3% from October to November, which would extend a streak of slowdowns. Measured month to month, inflation had soared 1% in May and 1.3% in June but has averaged just 0.2% over the past four months.

To some economists and Fed officials, such figures are a sign of improvement, even though inflation remains far above the central bank’s annual 2% target and might not reach it until 2024.

Fed Chair Jerome Powell has said he is tracking price trends in three different categories to best understand the likely path of inflation: Goods, excluding volatile food and energy costs; housing, which includes rents and the cost of homeownership; and services excluding housing, such as auto insurance, pet services and education.

In a speech two weeks ago in Washington, Powell noted that there had been some progress in easing inflation in goods and housing but not so in most services. Physical goods like used cars, furniture, clothing and appliances have become steadily less expensive since the summer.

Used car prices, which had skyrocketed 45% in June 2021 compared with a year earlier, have fallen for most of this year. In October, their year-over-year price increase was just 2%.

Housing costs, which make up nearly a third of the consumer price index, are still rising. But real-time measures of apartment rents and home prices are starting to drop after having posted sizzling price acceleration at the height of the pandemic. Powell said those declines will likely emerge in government data next year and should help reduce overall inflation.

Still, services costs are likely to stay persistently high, Powell suggested. In part, that’s because sharp increases in wages are becoming a key contributor to inflation. Services companies, like hotels and restaurants, are particularly labor-intensive. And with average wages growing at a brisk 5%-6% a year, price pressures keep building in that sector of the economy.

Services businesses tend to pass on some of their higher labor costs to their customers by charging more, thereby perpetuating inflation. Higher pay also fuels more consumer spending, which allows companies to raise prices.

“We want wages to go up strongly,” Powell said, “but they’ve got to go up at a level that is consistent with 2% inflation over time.”

On Wednesday, the Fed will likely raise rates for a seventh time this year, a move that will further increase borrowing costs for consumers and businesses. Still, the central bank is expected to raise its key short-term rate by a smaller half-point, after four straight three-quarter-point increases. That would leave its benchmark rate in a range of 3.75% to 4%, its highest level in 15 years.

Economists expect the Fed to further slow its rate hikes next year, with quarter-point increases in February and March if inflation remains relatively subdued.

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WASHINGTON (AP) — The nation’s punishing inflation rate likely kept simmering in October, giving the Federal Reserve little cause to ease up in its drive to slow price increases by steadily raising interest rates.

The Labor Department is expected to report Thursday that consumer prices jumped 8% from 12 months earlier and by a sharp 0.6% from September to October, according to a survey of economists by the data firm FactSet. A separate measure called core inflation, which excludes volatile food and energy costs, is expected to have surged 6.5% in the past year and 0.5% from September to October.

Like many other countries, the United States is struggling to control inflation, which is pressuring millions of households and dimming the outlook for the economy as the Fed keeps raising borrowing costs for businesses and consumers. The acceleration of inflation was unleashed by shortages of supplies and labor after the pandemic recession, by a burst of consumer spending fueled by vast federal aid and by cutoffs of food and energy after Russia’s invasion of Ukraine.

So far this year, the Fed has raised its benchmark interest rate six times in sizable increments, heightening the risk that prohibitively high borrowing rates — for mortgages, auto purchases and other high-cost expenses — will tip the world’s largest economy into recession.

Inflation was near the top of many voters’ minds in the midterm congressional elections that ended Tuesday. Their economic anxieties contributed to the loss of Democratic seats in the House of Representatives, though Republicans failed to score the huge political gains that many had expected.

Even at its current high levels, inflation by some measures has begun to ease and could continue to do so in coming months. Most measures of workers’ wages, for example, show that the robust pay increases of the past 18 months have leveled off and have begun to fall. Though worker pay is not a primary driver of higher prices, it can compound inflationary pressures if companies offset their higher labor costs by charging their customers more.

Except for automakers, which are still struggling to acquire the computer chips they need, supply chain disruptions have largely unsnarled. Shipping costs have dropped back to pre-pandemic levels. The backup of cargo ships off the port of Los Angeles and Long Beach has been cleared.

And as declines in new rents that have emerged in real-time measures from such sources as ApartmentList and Zillow begin to be captured in the government’s forthcoming measures, that factor should also reduce inflation.

Even as many fear that the economy will fall into recession next year, the nation’s job market has remained resilient. Employers have added a healthy average of 407,000 jobs a month, and the unemployment rate is just 3.7%, close to a half-century low. Job openings are still at historically high levels.

But the Fed’s rate hikes have inflicted severe damage on the American housing market. The average rate on a 30-year fixed mortgage has more than doubled over the past year, topping 7% before falling slightly last week. As a result, investment in housing collapsed in the July-September quarter, falling at a 26% annual rate.

Higher mortgage rates have depressed sales. Home prices are slowing sharply compared with a year ago and have begun to fall on a monthly basis. The cost of a new apartment lease is also declining.

Yet because of how the government calculates housing costs, economists think the price of housing might have surged in October and elevated broader inflation measures. The government measures the cost of all rents, including most rents that are under existing leases. Asking rents for new leases, though, are slowly declining.

And economists expect to see prices decline for many key goods. Used cars, which skyrocketed in price last year as shortages of computer chips sharply reduced the availability of new cars, are expected to have fallen from September to October. Wholesale used-car costs have declined steadily but have yet to show fully show up in retail prices.

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NEW YORK (AP) — Stocks tumbled to their worst day in more than two years Tuesday, knocking the Dow Jones Industrial Average down more than 1,250 points, following Wall Street’s humbling realization that inflation is not slowing as much as hoped.

The S&P 500 sank 4.3%, its biggest drop since June 2020. The Dow fell 3.9% and the Nasdaq composite closed 5.2% lower. The sell-off ended a four-day winning streak for the major stock indexes and erased an early rally in European markets.

Bond prices also fell sharply, sending their yields higher, after a report showed inflation decelerated only to 8.3% in August, instead of the 8.1% economists expected.

The hotter-than-expected reading has traders bracing for the Federal Reserve to ultimately raise interest rates even higher than expected to combat inflation, with all the risks for the economy that entails. Fears about higher rates sent prices dropping for everything from gold to cryptocurrencies to crude oil.

“Right now, it’s not the journey that’s a worry so much as the destination,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “If the Fed wants to hike and hold, the big question is at what level.”

The S&P 500 fell 177.72 points to 3,932.69. The drop didn’t quite knock out its gains over the past four days. The index is now down 17.5% so far this year.

The Dow lost 1,276.37 points to 31,104.97, and the Nasdaq dropped 632.84 points to 11,633.57.

All but six of the stocks in the S&P 500 fell. Technology and other high-growth companies fell more than the rest of the market because they’re seen as most at risk from higher rates.

Most of Wall Street came into the day thinking the Fed would hike its key short-term rate by a hefty three-quarters of a percentage point at its meeting next week. But the hope was that inflation was in the midst of quickly falling back to more normal levels after peaking in June at 9.1%.

The thinking was that such a slowdown would let the Fed downshift the size of its rate hikes through the end of this year and then potentially hold steady through early 2023.

Tuesday’s report dashed some of those hopes.

“This piece of data just hammered home that the Fed isn’t going to have the data to do anything differently than continue on their rate-raising path for longer,” said Tom Martin, senior portfolio manager with Globalt Investments. “It just increases the chance of an actual recession.”

Many of the data points within the inflation report were worse than economists expected, including some the Fed pays particular attention to, such as inflation outside of food and energy prices.

Markets honed in on a 0.6% rise in such prices during August from July, double what economists expected, said Gargi Chaudhuri, head of investment strategy at iShares.

The inflation figures were so much worse than expected that traders now see a one-in-three chance for a rate hike of a full percentage point by the Fed next week. That would be quadruple the usual move, and no one in the futures market was predicting such a hike a day earlier.

The Fed has already raised its benchmark interest rate four times this year, with the last two increases by three-quarters of a percentage point. The federal funds rate is currently in a range of 2.25% to 2.50%.

“The Fed can’t let inflation persist. You have to do whatever is necessary to stop prices from going up,” said Russell Evans, managing principal at Avitas Wealth Management. “This indicates the Fed still has a lot of work to do to bring inflation down.”

Higher rates hurt the economy by making it more expensive to buy a house, a car or anything else bought on credit. Mortgage rates have already hit their highest level since 2008, creating pain for the housing industry. The hope is that the Fed can pull off the tightrope walk of slowing the economy enough to snuff out high inflation, but not so much that it creates a painful recession.

Tuesday’s data puts hopes for such a “soft landing” under more threat. In the meantime, higher rates also push down on prices for stocks, bonds and other investments.

Investments seen as the most expensive or the riskiest are the ones hardest hit by higher rates. Bitcoin tumbled 9.4%.

To be sure, the stock market’s losses only return the S&P 500 close to where it was before its recent winning streak. That run was built on hopes that Tuesday’s inflation report would show a more comforting slowdown. The ensuing wipeout fits what’s become a pattern on Wall Street this year: Stocks fall on worries about inflation, turn higher on hopes the Fed may ease up on rates and then fall again when data undercuts those hopes.

Treasury yields leaped immediately on expectations for a more aggressive Fed. The yield on the two-year Treasury, which tends to track expectations for Fed actions, soared to 3.74% from 3.57% late Monday. The 10-year yield, which helps dictate where mortgages and rates for other loans are heading, rose to 3.42% from 3.36%.

Expectations for a more aggressive Fed also helped the dollar add to its already strong gains for this year. The dollar has been surging against other currencies in large part because the Fed has been hiking rates faster and by bigger margins than many other central banks.

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WASHINGTON (AP) — Inflation’s relentless surge didn’t merely persist in June. It accelerated.

For the 12 months ending in June, the government’s consumer price index rocketed 9.1%, the fastest year-over-year jump since 1981.

And that was nothing next to what energy prices did: Fueled by heavy demand and by Russia’s invasion of Ukraine, energy costs shot up nearly 42% in the past 12 months, the largest such jump since 1980.

Even if you toss out food and energy prices — which are notoriously volatile and have driven much of the price spike — so-called core inflation soared 5.9% over the past year.

Consumers have endured the pain in everyday routines. Unleaded gasoline is up 61% in the past year. Men’s suits, jackets and coats, 25%, Airline tickets, 34%. Eggs 33%. Breakfast sausage, 14%.

Under Chair Jerome Powell, the Federal Reserve never anticipated inflation this severe or persistent. Yet after having been merely an afterthought for decades, high inflation reasserted itself with ferocious speed as shortages of labor and supplies ran up against a propulsive rise in demand for goods and services across the economy.

In February 2021, the consumer price index was running just 1.7% above its level a year earlier. From there, it accelerated — past 2% in March, past 4% in April and 5% in May. By December, consumer prices hit the 7% year-over-year barrier. And on and on it went: 7.5% in January, 7.9% in February. And the increases have topped 8% every month since March.

The United States has endured worse inflation before, but not in many decades. The post-World War II inflation peak reached nearly 20% in 1947, a result of the lifting of wartime price curbs, supply shortages and pent-up consumer demand. The inflation of the 1970s and early 1980s peaked at 14.8% in March 1980 before the Fed exorcized high prices with aggressive rate hikes that caused brutal back-to-back recessions in 1980 and 1981-1982.

For months, Powell and some others characterized high inflation as merely a “transitory” phenomenon while the economy rebounded from the pandemic recession faster than anyone had anticipated. No longer. Now, most economists expect inflation to remain painfully elevated well after this year, with demand outstripping supplies in numerous areas of the economy.

So the Fed has radically changed course by imposing a succession of large rate hikes. The central bank is making a high-risk bet that it can slow the economy enough to rein in inflation without weakening it so much as to trigger a recession.

The overall economy looks healthy for now, with a robust job market and extremely low unemployment. But many economists warn that the Fed’s steady credit tightening will likely cause a downturn.

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WHAT’S CAUSED THE SPIKE IN INFLATION?

Good news — mostly. When the pandemic paralyzed the economy in the spring of 2020 and lockdowns kicked in, businesses closed or cut hours and consumers stayed home as a health precaution, employers slashed a breathtaking 22 million jobs. Economic output plunged at a record-shattering 31% annual rate in 2020′s April-June quarter.

Everyone braced for more misery. Companies cut investment and postponed restocking. A severe recession ensued.

But instead of sinking into a prolonged downturn, the economy staged an unexpectedly rousing recovery, fueled by vast infusions of government aid and emergency intervention by the Fed, which slashed rates among other things. By spring of last year, the rollout of vaccines had emboldened consumers to return to restaurants, bars, shops, airports and entertainment venues.

Suddenly, businesses had to scramble to meet demand. They couldn’t hire fast enough to fill job openings or buy enough supplies to meet customer orders. As business roared back, ports and freight yards couldn’t handle the traffic. Global supply chains seized up.

With demand up and supplies down, costs jumped. And companies found that they could pass along those higher costs in the form of higher prices to consumers, many of whom had managed to pile up savings during the pandemic.

Critics blamed, in part, President Joe Biden’s $1.9 trillion coronavirus relief package, with its $1,400 checks to most households, for overheating an economy that was already sizzling on its own. Many others assigned a greater blame to supply shortages. And some argued that the Fed kept rates near zero far too long, lending fuel to runaway spending and inflated prices in stocks, homes and other assets.

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IS HIGH INFLATION AFFECTING JUST THE UNITED STATES?

Not by a long shot. Prices are rising just about everywhere in the world, in part a consequence of Russia’s invasion of Ukraine, which has elevated energy and food prices, and in part because of the supply chain bottlenecks that have driven U.S. prices up.

Eurostat, the statistical service of the European Union, says it expects year-over-year inflation to hit 8.6% last month from a year earlier in the 19 countries that share the euro currency, and up from an annual increase of 8.1% in May.

The International Monetary Fund has forecast that consumer prices in the world’s advanced economies will jump 5.7% this year, the most since 1984. The IMF foresees 8.7% inflation in poorer emerging market and developing countries, the highest such rate since 2008.

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HOW LONG WILL IT LAST?

No one knows for sure. Elevated consumer price inflation could endure as long as companies struggle to keep up with consumers’ demand for goods and services. A recovering job market — employers added a record 6.7 million jobs last year and a healthy average of 457,000 a month so far this year — means that Americans as a whole can afford to keep spending.

The Fed foresees inflation staying above its 2% annual target into 2024. But relief from higher prices might be coming. Oil prices have been tumbling on fears of an economic downturn. Jammed-up supply chains are showing some signs of improvement, at least in industries like transportation. Commodity prices have begun to fall. Pay increases have slowed. And surveys show that Americans’ expectations for inflation over the long run have eased — a trend that often points to more moderate price increases over time.

What’s more, the Fed’s pivot toward an aggressively anti-inflationary policy could eventually reduce consumer demand. Inflation itself is eroding purchasing power and might force some consumers to shave spending.

At the same time, new COVID variants could cloud the outlook — either by causing outbreaks that force factories and ports to close and further disrupt supply chains or by keeping more people home and reducing demand for goods.

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HOW ARE HIGHER PRICES AFFECTING CONSUMERS?

The strong job market is boosting workers’ pay, though not enough to offset higher prices. The Labor Department says that after accounting for higher consumer prices, hourly earnings for private-sector employees fell 3.6% last month from a year earlier, the 15th straight drop.

There are exceptions: After-inflation wages rose more than 4% for hotel workers and 3% for those working in bars.

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WASHINGTON (AP) — U.S. inflation surged to a new four-decade high in June because of rising prices for gas, food and rent, squeezing household budgets and pressuring the Federal Reserve to raise interest rates aggressively — trends that raise the risk of a recession.

The government’s consumer price index soared 9.1% over the past year, the biggest yearly increase since 1981, with nearly half of the increase due to higher energy costs.

Lower-income and Black and Hispanic American have been hit especially hard, since a disproportionate share of their income goes toward essentials such as transportation, housing and food. But with the cost of many goods and services rising faster than average incomes, a vast majority of Americans are feeling the pinch in their daily routines.

For 72-year-old Marcia Freeman, who is retired and lives off of a pension, there is no escape from rising expenses.

“Everything goes up, including cheaper items like store brands,” said Freeman, who visited a food bank near Atlanta this week to try and gain control of her grocery costs. Grocery prices have jumped 12% in the past year, the steepest climb since 1979.

Accelerating inflation is a vexing problem for the Federal Reserve, too. The Fed is already engaged in the fastest series of interest rate hikes in three decades, which it hopes will cool inflation by tamping down borrowing and spending by consumers and businesses.

The U.S. economy shrank in the first three months of the year, and many analysts believe the trend continued in the second quarter.

“The Fed’s rate hikes are doing what they are supposed to do, which is kill off demand,” said Megan Greene, global chief economist at the Kroll Institute. “The trick is if they kill off too much and we get a recession.”

The likelihood of larger rate hikes this year pushed stock indexes lower in afternoon trading. The central bank is expected to raise its key short-term rate later this month by a hefty three-quarters of a point, as it did last month.

As consumers’ confidence in the economy declines, so have President Joe Biden’s approval ratings, posing a major political threat to Democrats in the November congressional elections. Forty percent of adults said in a June AP-NORC poll that they thought tackling inflation should be a top government priority this year, up from just 14% who said so in December.

After years of low prices, a swift rebound from the 2020 pandemic recession — combined with supply-chain snags — ignited inflation.

Consumers unleashed a wave of pent-up spending, spurred by vast federal aid, ultra-low borrowing costs and savings they had built up while hunkering down. As home-bound Americans spent heavily on furniture, appliances and exercise equipment, factories and shipping companies struggled to keep up and prices for goods soared. Russia’s war against Ukraine further magnified energy and food prices.

In recent months, as COVID fears have receded, consumer spending has gradually shifted away from goods and toward services. Yet rather than pulling down inflation by reducing goods prices, the cost of furniture, cars, and other items has kept rising, while restaurant costs, rents and other services are also getting more expensive.

The year-over-year leap in consumer prices last month followed an 8.6% annual jump in May. From May to June, prices rose 1.3%, following a 1% increase from April to May.

Some economists believe inflation might be reaching a short-term peak. Gas prices, for example, have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.63 nationwide Wednesday — still far higher than a year ago.

Shipping costs and commodity prices have also begun to fall, and pay increases have slowed. Surveys show that Americans’ expectations for inflation over the long run have eased — a trend that often points to more moderate price increases over time.

“While today’s headline inflation reading is unacceptably high, it is also out-of-date,” President Biden said Wednesday. “All major economies are battling this COVID-related challenge.”

The latest disappointing data on inflation came out at the outset of Biden’s trip to the Middle East, where he will meet with officials from Saudi Arabia to discuss oil prices, among other subjects.

Republican members of Congress have blamed the higher prices on Biden’s economic policies, specifically his $1.9 trillion financial support package approved in March.

There have been signs that inflation was slowing before — last summer, and in April of this year — only for it to surge again in subsequent months.

“There may be some relief in the July numbers — commodity prices have come off the boil, at least — but we are a very, very long way from inflation normalizing, and there is no tangible sign of downward momentum,” said Eric Winograd, an economist at asset manager AllianceBernstein.

For now, the relentless pace of price increases is frustrating many Americans.

Delores Bledsoe, a truck driver hauling freight from Carlisle, Pennsylvania to Wisconsin on Wednesday, said her fuel costs have tripled. “It’s making me want to get out of the truck and go drive an Uber,” said Bledsoe, who lives in Houston. “It’s depressing.”

Some people are placing blame on companies for using inflation as a cover to raise prices beyond the amount they need to cover their own higher costs.

“I feel the inflation pain every day,” Susana Hazard said this week outside a grocery store in New York City. “Every day, everything is going up and up, more than inflation — they’re price-adjusting. Because even if inflation doesn’t happen, they’ve raised the prices.”

Most economists say corporate price gouging is, at most, one of many causes of runaway inflation and not the primary one.

Housing and rental costs are rising steadily as solid job gains encourage more Americans to move out on their own. Rents have risen 5.8% compared with a year ago, the most since 1986. And the cost of decorating homes is still increasing at a rapid pace — furniture prices are up 13% from a year ago — even as retailers such as Walmart and Target experience rising inventories, which should help lower prices.

The biggest shock has been energy prices, which soared 7.5% just from May to June. Gas prices have skyrocketed nearly 60% compared with a year ago.

Excluding the volatile food and energy categories, so-called core prices rose 0.7% from May to June, the biggest such spike in a year. Core prices jumped 5.9% from a year ago.

Inflation is surging well beyond the United States, with 71 million people pushed into poverty in the three months after Russia invaded Ukraine, the U.N. Development Program said last week.

The war’s economic damage has been especially severe in Europe, with its reliance on Russian oil and natural gas squeezing businesses and consumers with sharply higher bills for utilities, groceries, gasoline and more. Inflation reached decades-high levels of 8.6% last month in the 19 countries that use the euro currency and 9.1% in the United Kingdom in May.

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