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Falling gas prices gave Americans a slight break from the pain of high inflation last month, though the surge in overall prices slowed only modestly from the four-decade high it reached in June.

Consumer prices jumped 8.5% in July compared with a year earlier, the government said Wednesday, down from a 9.1% year-over-year jump in June. On a monthly basis, prices were unchanged from June to July, the smallest such rise more than two years.

Still, prices have risen across a wide range of goods and services, leaving most Americans worse off. Average paychecks are rising faster than they have in decades – but not fast enough to keep up with accelerating costs for such items as food, rent, autos and medical services.

Last month, excluding the volatile food and energy categories, so-called core prices rose just 0.3% from June, the smallest month-to-month increase since April. And compared with a year ago, core prices rose 5.9% in July, the same year-over-year increase as in June.

President Joe Biden has pointed to declining gas prices as a sign that his policies – including large releases of oil from the nation’s strategic reserve – are helping lessen the higher costs that have strained Americans’ finances, particularly for lower-income Americans and Black and Hispanic households.

Yet Republicans are stressing the persistence of high inflation as a top issue in the midterm congressional elections, with polls showing that elevated prices have driven Biden’s approval ratings down sharply.

On Friday, the House is poised to give final congressional approval to a revived tax-and-climate package pushed by Biden and Democratic lawmakers. Economists say the measure, which its proponents have titled the Inflation Reduction Act, will have only a minimal effect on inflation over the next several years.

Canada’s Finance Minister, Chrystia Freeland, said Wednesday that the U.S. inflation numbers were good news for Canada.

“I really welcomed that data that we saw from the U.S. and I do want Canadians to be confident that our economy is fundamentally strong,” she told reporters at a news conference in Kitchener. “There are big challenges in the global economy. But as a country we have the strength, we have the institutions, that are going to be able to cope with this to bring things back into balance.”

While she said she cannot predict the future for Canadian inflation, she noted that Canada’s growth and jobs numbers in the first half of the year show the economy is strong.

While there are signs that inflation may ease in the coming months, it will likely remain far above the Federal Reserve’s 2% annual target well into next year or even into 2024. Chair Jerome Powell has said the Fed needs to see a series of declining monthly core inflation readings before it would consider pausing its rate hikes. The Fed has raised its benchmark short-term rate at its past four rate-setting meetings, including a three-quarter point hike in both June and July – the first increases that large since 1994.

A blockbuster jobs report for July that the government issued Friday – with 528,000 jobs added, rising wages and an unemployment rate that matched a half-century low of 3.5% – solidified expectations that the Fed will announce yet another three-quarter-point hike when it next meets in September. Robust hiring tends to fuel inflation because it gives Americans more collective spending power.

One positive sign, though, is that Americans’ expectations for future inflation have fallen, according to a survey by the Federal Reserve Bank of New York, likely reflecting the drop in gas prices that is highly visible to most consumers.

Inflation expectations can be self-fulfilling: If people believe inflation will stay high or worsen, they’re likely to take steps – such as demanding higher pay – that can send prices higher in a self-perpetuating cycle. Companies then often raise prices to offset higher their higher labour costs. But the New York Fed survey found that Americans’ foresee lower inflation one, three and five years from now than they did a month ago.

Supply chain snarls are also loosening, with fewer ships moored off Southern California ports and shipping costs declining. Prices for commodities like corn, wheat and copper have fallen steeply.

Yet in categories where price changes are stickier, such as rents, costs are still surging. One-third of Americans rent their homes, and higher rental costs are leaving many of them with less money to spend on other items.

Data from Bank of America, based on its customer accounts, shows that rent increases have fallen particularly hard on younger Americans. Average rent payments for so-called Generation Z renters (those born after 1996) jumped 16% in July from a year ago, while for baby boomers the increase was just 3%.

Stubborn inflation isn’t just a U.S. phenomenon. Prices have jumped in the United Kingdom, Europe and in less developed nations such as Argentina.

In the U.K., inflation soared 9.4% in June from a year earlier, a four-decade high. In the 19 countries that use the euro currency, it reached 8.9% in June compared with a year earlier, the highest since recordkeeping for the euro began.

- With a file from The Globe and Mail

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