Good morning. This is Jeff Sparshott with the latest on the economy. You can send questions, comments and suggestions by replying to this email.

The pace of price increases slowed in July as energy costs dropped, pulling annual U.S. inflation down slightly from a four-decade high. The Labor Department on Wednesday said the consumer-price index, a measure of what consumers pay for goods and services, rose 8.5% in July from the same month a year ago, down from 9.1% in June. June marked the fastest pace of inflation since November 1981. On a monthly basis, the CPI was flat in July after rising for 25 consecutive months, the result of falling energy prices such as gasoline, Gwynn Guilford reports.

Price pressures abated across energy categories, with gasoline down 7.7% in July from the prior month. Used-car prices, up sharply earlier in the pandemic, also dropped on a month-to-month basis, as did airline fares and apparel. Grocery prices were up 1.3% in July from the prior month and rose 13.1% in July from a year ago, the fastest annual pace since 1979. Dining out costs also rose.

• How Inflation Hit Households in July: Higher Prices for Food, Electricity and Alcohol Consumed at Home

Elevated inflation is the byproduct of rapid growth as the U.S. rebounded from the Covid-19 pandemic, fueled in part by lower interest rates and government stimulus. The Federal Reserve faces the challenge of tightening monetary policy to cool the hot labor market and slow demand enough to curb inflation, but not so much as to set off a recession.

U.S. jobless claims are expected to rise to 264,000 in the week ended Aug. 6 from 260,000 one week earlier. (8:30 a.m. ET)

The U.S. producer-price index for July is expected to increase 0.2% from the prior month. (8:30 a.m. ET)

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Consumers are likely to travel and spend more because U.S. national gasoline prices have fallen for weeks, economists said, delivering an expected boost to the economy. The average cost of a gallon of regular unleaded gasoline fell below $4 on Wednesday, according to energy data provider OPIS. That is well below the record high of $5.02 reached in mid-June but still about 80 cents a gallon higher than prices were a year ago. Gasoline prices have an important role in how people think the economy is doing and how quickly they expect other prices to rise, economists say. The public sees pump prices every day as they commute to work or walk around city streets. Unlike houses or used cars, consumers buy gasoline weekly at prices that fluctuate daily, Austen Hufford reports.

• Gas Prices Dip to $4 a Gallon for First Time Since March

Those falling gas prices and easing inflation, alongside strong job creation, may already be showing up in consumer confidence data. A daily survey of consumers from Morning Consult improved in July, halting a 12-month slide. While the index is still down at least 15% in all 50 states compared to July 2021, the latest uptick suggests confidence may have hit bottom earlier in the summer, the data intelligence company said.

Social Security recipients are on track to receive the highest cost-of-living increase in more than four decades next year. Social Security checks get an inflation adjustment every year based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. The nonprofit Senior Citizens League estimates that if inflation remains at the current level, on average, over the next two months, the approximately 70 million retirees and disabled people who receive Social Security benefits could see their monthly checks rise by about 9.6% in 2023, Anne Tergesen reports.

A slowdown in inflation last month, following recent indications of a robust labor market, complicates the Federal Reserve’s decision on how much to raise interest rates next month. Data on inflation and economic activity are likely to guide whether central bank officials lift their benchmark federal-funds rate by half a percentage point or three-quarters of a point at their Sept. 20-21 policy meeting. They have said they want to see evidence that price pressures and economic growth are cooling before they moderate their pace of rate increases. Wednesday’s inflation report keeps the Fed’s door open to a half-point rate increase in September if subsequent data confirm price pressures are easing. But a 0.75-point rise remains possible after recent reports of accelerating growth in jobs and wages point to significant income gains that could sustain stronger spending and higher prices, Nick Timiraos reports.

• Heard on the Street: Fed’s Inflation Battle Is Far From Won

• How High Is Inflation and What Causes It? What to Know

• Inflation Tracker: When Will Prices Stop Going Up?

The federal budget deficit narrowed in July, the result of falling spending and rising government revenue. The deficit declined 30% to $211 billion last month, the Treasury Department said Wednesday. Over the first 10 months of the fiscal year ending Sept. 30, government spending has fallen 18% and receipts have increased 24%. Strong tax receipts, the product of a robust labor market and other factors experts don’t yet understand, have pushed revenue to a record so far this fiscal year, Andrew Duehren reports.

Across Europe, national and local governments are pushing to curtail energy usage as Russia cuts its gas shipments in response to Western sanctions during the war in Ukraine. Piecemeal restrictions have so far had minor but far-reaching impacts on daily life across the continent, with some public pools lowering temperatures, city centers losing overnight lighting and fountains running dry. The emerging policies, which so far focus on public spaces, aim to conserve energy and help stockpile reserves, officials and experts say, as well as send a message to residents who may need to cut back. The sacrifices could increase in the coming months, as countries dependent on Russian gas brace for winter and the possibility of a total shut-off, David Uberti and Eliza Collins report.

Latin America's Lithium Triangle accounts for some 55% of the world’s known deposits of the metal, a key component in electric-vehicle batteries. Tapping into that resource can be a challenge. In the California-sized chunk of land that overlaps parts of Chile, Bolivia and Argentina, production has suffered at the hands of leftist governments angling for greater control over the mineral and a bigger share of profits, as well as from environmental concerns and greater activism by local Andean communities who fear being left out while outsiders get rich. At a time of exploding demand that has sent lithium prices up 750% since the start of 2021, industry analysts worry that South America could become a major bottleneck for growth in electric vehicles, Ryan Dube reports.

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Real Time Economics comes to you from WSJ reporters and editors around the world. Today's issue was curated and edited by Jeff Sparshott (@jeffsparshott) and Greg Ip (@greg_ip) in Washington, D.C., and James Hookway (@JamesHookway) in London.

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