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Inflation flattens in July, as gas prices drop in August

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Student Cade Bridges fills his tank. The average price of a gallon of gas across Virginia is $3.81.

How inflation is impacting the way people spend their money. PennyGem’s Johana Restrepo has more.

Inflation flattened in July and drivers are noticing at the gasoline pump, especially in the Richmond area.

While the average price of gasoline nationally is poised to drop below $4 a gallon for the first time since early March, it’s already down to $3.81 a gallon across Virginia, according to AAA Mid-Atlantic.

In Richmond, the average price was $3.72 a gallon on Wednesday, or $1.21 a gallon lower than at the record peak on June 14, as inflation rose 9.1% over the previous June.

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Inflation in July was still 8.5% higher than the same month a year earlier, but it remained flat from June to July, reflecting a fall in gas prices driven by a decline in the cost of crude oil, reduced consumer demand and a skittish commodities market in the face of recession.

“It’s reliant on a commodities market, so it has very high highs and very low lows,” AAA spokesman Morgan Dean said of the roller-coaster price of motor fuels.

With the cost of crude oil and gasoline ebbing and consumer demand falling as the next school year approaches, Richmond economist Kent Engelke said inflation is likely to decline to between 4% and 6%, year over year, but not to the 2% target sought by the Federal Reserve Board.

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“I think inflation is fairly entrenched,” said Engelke, chief economic strategist and managing director at Capitol Securities Management, Inc., who said housing costs and rising wages are continuing to feed higher prices.

Still, the inflation report represented a turnaround for costs that have been rising the past year from a combination of pent-up consumer demand during the COVID-19 pandemic, choked global supply chains, federal emergency relief and monetary policy.

“This is the first time in 11 months that inflation undercut expectations,” Engelke said.

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As a result, economists speculate that the Federal Reserve Board might moderate its recent push to raise interest rates by approving an increase of 0.5% at its meeting next month, rather than a third consecutive hike of 0.75% or even 1% to curb inflation.

The fall in gasoline prices has helped, as crude oil costs have dropped from over $120 a barrel to below $90 a barrel. One reason is the likelihood that the U.S. economy already is experiencing what Engelke called “the most predicted recession in history,” with gross domestic product growth lagging inflation for two consecutive quarters.

Commodity markets bet on the future, so recession would further reduce demand for oil and gasoline in the months ahead, lowering the cost because of what Dean, at AAA, called “economic uncertainty down the road.”

At the same time, the domestic gasoline supplies have increased, expanding inventory at what normally is the height of the summer driving season.

“If gas demand remains low and the supply continues to increase alongside falling oil prices, drivers will likely continue to see pump prices drop,” AAA said on Monday.


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