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Families are continuing to have to deal with the effects of inflation

A MARTINEZ, HOST:

Last month, falling prices at the gas pump gave consumers some relief from the highest inflation in four decades. Thing is, though, other costs continue to climb, outpacing wage gains and putting a strain on many family budgets. NPR's Scott Horsley has been talking with families about how they're dealing with inflation. And he's joins us now with details of today's cost-of-living report.

Scott, annual inflation back in June hit 9.1%. How did July shape out?

SCOTT HORSLEY, BYLINE: Annual inflation cooled a bit last month. It was 8.5% in July. That's still high but down from June's rate. Remember, June was the month when gasoline prices hit a record high, above $5 a gallon. And since that time, the price at the pump has dropped by about a dollar. We also saw a drop last month in air fares and the price of used cars. But, as you mention, other costs are still going up.

In particular, the cost of housing has gotten so high in Pennsylvania, where Spencer Sutton lives, he and his wife were forced to move in with Spencer's mother.

SPENCER SUTTON: As a 30-year-old millennial, I did not think that I would still be living with my mom - with my brother, my wife and her, you know? It's not what I had envisioned. And it's certainly not the most ideal arrangement. But with what's going on in today's day and age, we have to do what we have to do.

HORSLEY: And housing prices tend to be stickier than gasoline prices, which bounce up and down a lot. If you take out those volatile categories of food and energy, so-called core inflation in July was unchanged, at 5.9%.

MARTINEZ: All right. So how are people coping with these rising prices?

HORSLEY: In some cases, they're buying less - you know, cutting back on meat and buying more ramen, for example. Of course, there are limits to how much you can economize when it comes to rent or the electric bill.

Penelope Valdespino got a raise this year when she switched from a retail job to a post at the school district in San Antonio. But that extra income is just being gobbled up, she says, by the rising costs of groceries and utilities.

PENELOPE VALDESPINO: I finally moved over to a different job where, yes, I'm going to be getting paid $3 to $4 more an hour. That's awesome. You know, but still, for me to catch up and keep everything in order is still a challenge in this climate right now.

HORSLEY: And a lot of people are in that same boat. You know, on average, prices are still climbing faster than wages. So people have been drawing down savings, putting more of their spending on credit cards and, in some cases, just getting by with less.

MARTINEZ: All right. So what does all this mean for the Federal Reserve's effort to curb inflation?

HORSLEY: Well, the Fed is likely going to keep raising interest rates pretty aggressively when it next meets in September. The Fed is trying to tamp down demand and get prices back under control. That effort did get a little more challenging last week when we learned that employers had added more than half a million jobs in July. Of course, more jobs is good, but it also means half a million more paychecks, and that means more demand and more upward pressure on prices. Now, the Fed did get some good news this week in the form of a new survey which showed that people think inflation's going to be significantly lower a year or three years from now than they were thinking back in June.

And Diane Swonk, who's chief economist with KPMG, thinks that change in attitude is all about that big drop in gas prices.

DIANE SWONK: It's something we all see. Even if you don't drive, you walk by or you drive by a gas station. It's something we all notice front and center every single day.

HORSLEY: So, A, cheaper gasoline can affect people's attitudes as well as their pocketbooks. And this is something that the Federal Reserve does keep a close eye on - consumer expectations - because, you know, the psychology of where people think inflation's going can actually influence where prices actually end up.

MARTINEZ: NPR's Scott Horsley.

Scott, thanks for the clarity.

HORSLEY: You're welcome.

(SOUNDBITE OF PINK FLOYD SONG, "MONEY") Transcript provided by NPR, Copyright NPR.

A Martínez is one of the hosts of Morning Edition and Up First. He came to NPR in 2021 and is based out of NPR West.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.