COLUMN: At 3.4%, inflation is slowing without restoring purchasing power

Even a good number can still hurt

3.4%. U.S. inflation slowed in July for the second month in a row. On a month-over-month basis, prices rose by only 0.1%. “Relief” is an appropriate word. “Victory” is not.

The thermometer is dropping

The Bureau of Labor Statistics released its Consumer Price Index on August 12. The overall CPI was 3.4% higher than a year ago, down from 3.5% in June. Excluding food and energy, annual inflation fell from 2.6% to 2.5%. On a month-over-month basis, the core index rose by 0.2%.

These numbers are heading in the right direction. They indicate that the pace of the increase is moderating. They do not mean that prices are falling. They do not mean that households are regaining what five years of rising prices have taken away from their budgets.

The level remains the same

The overall index stood at 333.918 on a 1982–1984 base of 100. This figure isn’t an individual bill, but it highlights a dynamic often lost in the headlines: slower inflation adds yet another layer to the already high price level.

When a fire spreads more slowly, the house isn’t rebuilt. In economics, the comparison is less dramatic, but the principle holds true: slowing the loss of purchasing power does not make up for past losses.

The thermometer is dropping. But the bill doesn’t forget the previous years.

What 3.4% Really Measures

A national average, not an average life

The CPI-U tracks a basket of goods and services consumed by urban households. It aggregates housing, food, energy, transportation, health care, clothing, and much more. Its annual change of 3.4% is not seasonally adjusted; its monthly change of 0.1% is seasonally adjusted.

This method allows for comparisons across time periods. It does not claim that every individual experiences exactly a 3.4% increase. A renter renewing their lease, a driver who travels long distances, and a homeowner without a mortgage do not have the same basket of goods and services.

The average masks opposing trends

In July, energy costs fell by 1.5% month-over-month. Housing costs rose by 0.1% and accounted for about two-thirds of the overall monthly increase. Food prices rose by 0.1%, while grocery shopping costs fell slightly and dining out costs rose by 0.3%.

The national figure is a single note played by instruments that aren’t in sync. Gas prices fell in July. Airfare rose. Hotel rates fell. Rents continued to rise.

An average tells you where the country is headed. It doesn’t tell you where your budget took a hit.

Energy Provides Relief but Poses a Threat

Down 1.5% month-over-month

The monthly decline in energy prices pulled the overall index down. Gas prices fell 2.9% in July. Following an even steeper drop in June, this trend allowed overall inflation to slow despite persistent increases in other categories.

This respite is real. Filling up for less frees up money immediately. Fuel also factors into businesses’ transportation costs. A prolonged decline could therefore ease pressure on other prices over time.

Up 14.7% year-over-year

But energy remained 14.7% more expensive than in July 2025. Gasoline, despite its monthly decline, still posted a year-over-year increase of 24.6%. Home heating oil was up 39.1%. This is the contrast that runs throughout the report: the recent trend is reassuring, but the annual level remains high.

July’s decline does not eliminate the energy shock. It merely alleviates a fraction of it. A family pays the price for the month, not the smooth curve of the graph.

The relief at the pump does not erase the kilometers already paid for at an inflated price.

Housing costs are slowing without becoming affordable again

One-third of the basket

Housing accounts for about one-third of the CPI. In July, its index rose by only 0.1%, marking a second month of modest increases. Year-over-year, it was still up 3.2%. This deceleration matters greatly because the category is significant and persistent.

Rents and the rent equivalent for homeowners each rose 0.3% month-over-month, according to EY’s analysis. Lower prices for lodging away from home limited the overall increase. Hotels, in particular, saw a decline following the high rates associated with the World Cup.

A slowdown isn’t a new lease

For a household, housing is not a category that can be easily replaced. You can postpone a purchase, choose a cheaper meal, or drive less. Rent or a mortgage payment is a much more rigid constraint.

This is where inflation becomes a matter of choice. Housing takes its share before the rest of the month even begins. If it rises more slowly, the pressure eases. But that doesn’t mean the space lost in the budget is regained.

A less inflationary roof over one’s head is still a more expensive one.

Groceries offer a bit of breathing room, not a solution

The “tenth” trap

The official report shows a 0.1% increase for food overall. This result reflects two trends: prices for food purchased at home fell by 0.1%, while those for meals eaten away from home rose by 0.3%. There is therefore no contradiction between a small decline in grocery prices and an increase in the total food index.

Year-over-year, food prices were 3% higher. Prices for products purchased in stores rose by 2.7%, and those for meals eaten at restaurants by 3.4%. Fruit and vegetable prices showed different trends from those of dairy products or meat.

Lettuce Does Not Sum Up the Shopping Basket

Lettuce prices fell by 16.4% over the course of a month, a drop attributed in news reports to a decline in demand following health concerns. This dramatic fluctuation should not be taken as an artificial indicator that groceries have suddenly become affordable. One category can plummet while the overall basket remains more expensive than it was a year ago.

The grocery basket isn’t an average we eat. It’s made up of repeated purchases, substitutions, and sacrifices. A 0.1% monthly drop in grocery costs gives us some breathing room. It doesn’t make up for the years of accumulated costs.

The grocery bill sometimes goes down before the anxiety over the grocery bill does.

Wages Tell Several Truths

3.2%, 3.5%: two measures, two scopes

Articles published on August 12 compared the 3.4% inflation rate to a 3.2% annual increase in the average hourly wage. This figure comes from the monthly employment report. The Employment Cost Index offers another perspective: in the quarter ending in June, private-sector wages and salaries had risen 3.5% year-over-year.

These figures do not cancel each other out. They do not cover the exact same time period or the same mix of workers. One figure may change as job types shift; the other seeks to account for that mix more closely.

The honest statement is more difficult

Simply saying “wages have risen more slowly than prices” accurately describes the comparison between July’s CPI and the average hourly wage in July. To elevate this to a universal truth for all workers would be too broad a generalization. Some measures show a narrower gap, while others show a slight lead.

The solid conclusion is not that everyone is getting poorer at the same rate. It is that the average rise in prices continues to eat away at a large portion of nominal gains, and that a single bad month is enough to push back those whose margins were already slim.

A paycheck can go up on the pay slip and go down in the store aisle.

Purchasing power cannot be gauged by a single rate

Real Wages as a Subtraction

Purchasing power depends on the relationship between income and prices. The New York Times, citing government data, reported a 0.2% decline in the average real hourly wage between July 2025 and July 2026. This measure adjusts nominal wages for inflation.

A 0.2% drop seems small. For a household that still has savings and discretionary spending, it can be absorbed. For a household already stretched thin between rent, transportation, food, and debt, that tenth of a percent becomes one less option.

Fixed expenses take priority over household discretionary spending

Inflation doesn’t just hit through its average rate. It hits through the order in which payments are made. Housing, insurance, essential transportation, and food take precedence over leisure. If these categories rise, the disposable income remaining after obligations shrinks more than the overall index suggests.

Purchasing power isn’t the number printed on a paycheck. It’s what’s left after unavoidable expenses have been paid. When that remainder shrinks, statistical prosperity becomes a conversation that some households watch from afar.

We don’t live on nominal wages. We live on what they can still buy.

Core inflation remains subdued but fails to convince

2.5%, closer to the target

Excluding food and energy, prices rose 2.5% year-over-year. That’s down from 2.6% in June and significantly lower than overall inflation. On a month-over-month basis, the 0.2% increase remained moderate.

This measure is of particular interest to economists because it excludes two volatile categories. It helps gauge whether price pressures are spreading to services and goods less subject to immediate shocks. It does not replace the experience of households, who eat and travel.

Services Hold Steady

The details are less reassuring than the headline suggests. Medical services have rebounded. Airfares rose 2.2% month-over-month and more than 25% year-over-year. Rents continued to climb. Some technology products also became more expensive.

Core inflation is slowing, but it hasn’t gone away. As long as services that require labor, housing, and capital continue to rise, disinflation may become uneven rather than triumphant.

Removing energy from the calculation clarifies the trend. It doesn’t remove energy from life.

The Fed is looking into another mirror

The CPI Is Not the PCE

The Federal Reserve targets 2% inflation over the long term, as measured by the Personal Consumption Expenditures (PCE) index. This is not the CPI. The weightings differ, as does the scope. Confusing the 2% target with a mechanical rule applied solely to the 3.4% figure would be a mistake.

In its July report, the Fed noted that total PCE rose 4.1% year-over-year in May and core PCE rose 3.4%. These figures preceded the release of the July CPI. They showed stronger inflationary pressure according to the measure favored by the central bank.

A report does not dictate a decision

The Fed must weigh inflation, employment, expectations, credit, and financial risks. The July figure gives it a reason to wait for more data. It does not make the decision for the committee. Before the September meeting, other releases may change the outlook.

A central bank does not have the luxury of celebrating a single month. It must ask whether the slowdown will survive the next energy shock, the next jobs report, and the delayed effects of tariffs.

3.4% is a data point. A rate decision is a bet on what’s to come.

The Political Trap of Relief

Focus on the trend, not the level

An administration wants to show that inflation is slowing. It’s right to point out the trend. Its opponent wants to remind people that prices remain high. He’s right to point out the level. The deception begins when one claims that the downward trend makes the current level painless, or when the other completely denies the slowdown.

Donald Trump can give his administration credit for a moderate month. He must also take responsibility for the policies that influence costs, particularly tariffs and energy decisions. No presidency alone controls global inflation. Nor does any deserve immunity from scrutiny for its choices.

The cost of living isn’t measured in percentages

Households assess the economy through their day-to-day experiences: rent, filling up the car, groceries, credit card rates, and plane tickets when they need to travel. A campaign that responds to them with an exact but abstract average may be factually accurate but politically tone-deaf.

The July report is good news. To treat it as proof of restored purchasing power would be a misreading of the data and a lack of respect. People know what’s left in their accounts after they’ve made their payments.

You can win the statistical argument and still lose the trust of households.

Inequality is hidden in the composition of the basket

Low-income households don’t spend at the average level

Lower-income households generally devote a larger share of their budget to necessities. When energy costs rise 14.7% year-over-year and food prices increase by 3%, they have fewer discretionary expenses to cut. The overall slowdown helps them, but it comes after a period of accumulated pressure.

Wealthier households can benefit more from rising financial assets and temporarily absorb a higher cost of living. The New York Times notes that spending has held up in part thanks to high-income consumers, even as signs of strain have multiplied further down the income ladder.

Debt buys time—at a high cost

When real income doesn’t keep pace, credit can sustain consumption. But credit doesn’t replace income; it merely defers the bill and adds interest. Delinquent payments on credit cards, auto loans, and student loans are therefore indicators to watch alongside prices.

Average inflation may slow while vulnerability increases. The household that takes out a loan to pay for groceries or a repair isn’t experiencing theoretical disinflation. It’s turning a present cost into a future obligation.

Debt sometimes prevents a fall. It doesn’t make the ground any closer.

Disinflation Is Not Deflation

The word that would prevent so many misunderstandings

Disinflation means that prices are rising more slowly. Deflation means that they are falling on average. July saw disinflation on a twelve-month basis and a small monthly increase. Some categories saw price declines, but the overall index did not fall.

This distinction should be at the heart of every public discussion. It explains why economic improvement can coexist with the feeling that nothing has become affordable again. The two perceptions are not contradictory.

Why Prices Don’t Simply Return to Normal

A general and prolonged decline in prices may seem appealing after a period of high inflation. It can also accompany weak demand, income under pressure, and a contracting economy. The normal goal, therefore, is not to reverse course, but to stabilize the rate of increase while allowing incomes to catch up.

True recovery will not come from a miracle in which every price tag returns to 2020 levels. It will come if prices stop rising, if wages increase sustainably, and if housing, energy, and debt take up less of a share of household budgets.

Slowing the rise is the beginning of catching up. It is not the catching up itself.

September isn’t decided in August

The Hawks and the Patient Camp

Following the release, markets scaled back their expectations for a rate hike in September, according to probabilities reported by CNN. EY believes the report gives the Fed more room to be patient, while noting that officials most concerned about inflation will not be fully reassured.

These reactions are expectations, not decisions. The committee was already divided. Some members had voted in favor of tightening at the previous meeting. The next inflation report and labor market data could shift the balance.

The dual risk

Raising rates too quickly could further weaken the job market and credit conditions. Waiting too long could allow inflation to resurface, especially if energy prices rise again or if tariff costs are passed on. A central bank must navigate between two mistakes, the victims of which are not always the same.

Caution is not inaction. It is recognizing that a positive figure comes amid an economy where hiring is slowing, energy remains expensive, and core inflation has not yet reached the target.

The Fed can wait for data. Households, however, pay the price while they wait.

What Should Be Called a Victory

Incomes Outpacing Prices

A victory wouldn’t be a single month at 0.1%. It would be a sufficiently long period during which real incomes rise for several groups of workers, during which food and housing stop squeezing household budgets, and during which the decline in inflation doesn’t depend solely on a volatile drop in energy prices.

This recovery would also need to reach households with the least savings and the most fixed expenses. A positive average wage can coexist with a decline at the bottom of the pay scale. Distribution matters just as much as the rate.

Stability That Does Not Punish Employment

The central bank seeks price stability and maximum employment. The government, for its part, has other levers at its disposal: competition, housing, energy infrastructure, trade policy, targeted support, and fiscal discipline. No single tool can restore purchasing power on its own.

Victory will be modest, gradual, and unheralded. More predictable prices. Real wages on the rise. Less debt needed to make ends meet each month. It’s less photogenic than a headline about 3.4 percent. It’s infinitely more true.

An economy heals when daily life becomes predictable again.

The Number and What It Doesn’t Show

Recognizing the Improvement

Headline inflation slowed from 3.5% to 3.4%. Core inflation fell to 2.5%. Energy prices fell over the past month. Grocery prices declined slightly. Housing costs rose more slowly. These are real improvements, backed by the official report.

To deny them would serve a politics of anger, not the truth. A credible column must be able to acknowledge a positive figure even when it challenges its angle.

Rejecting Premature Optimism

But energy prices remained 14.7% higher than a year earlier. The overall price level remained high. The average real hourly wage had fallen according to the reported year-over-year comparison. Housing costs continued to rise. The Fed remained far from certain.

3.4% is a glimmer of hope. It is not a payback. The figure slows the rate at which purchasing power can erode; it does not restore the savings that were spent, the purchases that were postponed, or the lost margin.

The country can catch its breath a little without telling itself that it has regained its footing.

The relief is real. Recovery awaits.

By Maxime Marquette, columnist

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I am not a journalist, but a columnist and analyst. My expertise lies in observing and analyzing the geopolitical, economic, and strategic dynamics that shape our world. My work consists of dissecting political strategies, understanding global economic trends, contextualizing the decisions of international actors, and offering analytical perspectives on the transformations that are redefining our societies.

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COLUMN: At 3.4%, inflation is slowing without restoring purchasing power