2024-09-11 16:07:03
Inflation in the US continued to cool last month, official figures showed, raising confidence that the US central bank will cut interest rates next week.
Consumer prices rose 2.5% over the 12 months to August, as prices for petrol, used cars and trucks, and some other items fell.
That marked the slowest pace since February 2021 and was down from 2.9% in July, despite an unexpected rise in housing costs.
The Labor Department figures come during a presidential campaign in which rising living costs have been a key issue.
Analysts said the data increased the likelihood that the Federal Reserve would cut interest rates by 0.25 percentage points at its meeting next week, but reduced the odds of bigger cut.
“Overall, inflation appears to have been successfully tamed but, with housing inflation still refusing to moderate as quickly as hoped, it hasn’t been completely vanquished,” said Paul Ashworth, chief North America economist for Capital Economics.
The data shows price pressure is fading for key household items.
Grocery prices, which were surging just a few years ago, were unchanged from July to August and are up less than 1% from a year ago, according to the report.
The cost of petrol, another staple, has also dropped, falling over the month and more than 10% from August 2023.
However, prices for other items continued to climb.
Not including food and energy – which tend to fluctuate and can obscure underlying trends – prices were up 3.2% over the year, as airline tickets, car insurance, rent, and other housing costs grew more expensive.
“This serves as a bit of a reminder not to get too carried away with a few months of better inflation data,” said Brian Coulton, Fitch Rating‘s chief economist.
“Certainly not enough to stop the Fed cutting rates later this month, but the stickiness of services inflation… will be one reason why the Fed will not be cutting rates at an aggressive pace over the next year or so.”
Central banks, including the Fed, started upping borrowing costs two years ago in an attempt to slow inflation.
Prices began to rise globally in 2021 because of pandemic-related supply issues and a jump in government spending.
Russia’s invasion of Ukraine in 2022 then caused oil prices to surge, further fuelling global inflation.
US inflation hit a high of 9.1% in June 2022, but has since fallen closer to the 2% rate considered healthy.
Jasmine Loeber, a stay-at-home mother from Pennsylvania, was so shocked by price increases in recent years that she began posting on social media about her expensive supermarket hauls.
But the 26-year-old told the BBC that prices have recently started to become more affordable.
She is still shopping strategically – avoiding certain brands and sticking with stores known for being budget friendly – but is now seeing more discounts.
“I’ve noticed, over the last few months, they’ve got red tags on everything,” she said, adding that her family recently took its first holiday in three years.
But she said wider financial pressures, like housing costs, still weighed so heavily that she did not plan to have more than one child.
The latest figures went largely unremarked in the aftermath of the first debate and as political leaders marked the anniversary of the 11 September attacks on New York’s world trade center.
Jasmine, who lives in a state both campaigns see as must-win in November, said she did not vote in 2020 and was unsure whether she would this year.
“It’s really hard to be believe that they’re actually going to be able to do anything about it,” she said.
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What factors contributed to the recent decline in the US inflation rate to 2.5% in August?
Table of Contents
US Inflation Rate Cools Down to 2.5% in August, Raising Hopes for Interest Rate Cut
The latest data from the Labor Department shows that the US inflation rate has continued to cool down, with consumer prices rising 2.5% over the 12 months to August [[1]]. This marks the slowest pace since February 2021 and is down from 2.9% in July, despite an unexpected rise in housing costs. The fall in inflation has raised confidence that the US central bank, the Federal Reserve, will cut interest rates by 0.25 percentage points at its meeting next week.
Food and Energy Prices Drop, While Housing Costs Continue to Rise
According to the report, prices for petrol, used cars and trucks, and some other items have fallen, contributing to the decline in inflation. Grocery prices, which were surging just a few years ago, were unchanged from July to August and are up less than 1% from a year ago [[2]]. The cost of petrol has also dropped, falling over the month and more than 10% from August 2023 [[3]]. However, prices for other items continued to climb, with airline tickets, car insurance, rent, and other housing costs growing more expensive.
Falling Inflation Rate a Relief for Consumers
The falling inflation rate is a welcome relief for consumers who have been struggling with rising living costs. Jasmine Loeber, a stay-at-home mother from Pennsylvania, was so shocked by price increases in recent years that she began posting on social media about her expensive supermarket hauls. However, she told the BBC that prices have recently started to become more affordable, with discounts becoming more common. Despite this, she still feels the pressure of wider financial pressures, like housing costs, and has no plans to have more than one child.
Federal Reserve Likely to Cut Interest Rates
Analysts believe that the data increases the likelihood that the Federal Reserve will cut interest rates by 0.25 percentage points at its meeting next week. However, the stickiness of services inflation may prevent the Fed from cutting rates at an aggressive pace over the next year or so. As Paul Ashworth, chief North America economist for Capital Economics, noted, “inflation appears to have been successfully tamed but, with housing inflation still refusing to moderate as quickly as hoped, it hasn’t been completely vanquished.”
Inflation Rate Falls Closer to 2% Target
The US inflation rate has fallen significantly since hitting a high of 9.1% in June 2022, and has now fallen closer to the 2% rate considered healthy by the Federal Reserve. Central banks, including the Fed, started upping borrowing costs two years ago in an attempt to slow inflation, which rose globally in 2021 due to pandemic-related supply issues and a jump in government spending. Russia’s invasion of Ukraine in 2022 then caused oil prices to surge, further fuelling global inflation.
the falling inflation rate is a positive development for the US economy, and may lead to an interest rate cut by the Federal Reserve. However, consumers still face financial pressures, particularly in terms of housing costs, and the Fed will need to carefully consider its next move to ensure a continued economic recovery.
References:
US Inflation Rate Slows to 2.5% in August, Boosting Hopes for Interest Rate Cut
The latest inflation data from the US Labor Department has brought welcome news for consumers, with the Consumer Price Index (CPI) slowing to 2.5% in August, the lowest rate in three years [1]. This decline in inflation has increased speculation that the Federal Reserve will cut interest rates by 0.25 percentage points at its meeting next week [2].
The drop in inflation was driven by decreases in prices for petrol, used cars and trucks, and other items, which more than offset an unexpected rise in housing costs [3]. This marks a significant slowdown from July, when the inflation rate stood at 2.9%. The modest pace of inflation has been a key issue in the ongoing presidential campaign, with rising living costs being a major concern for voters [1].
While analysts acknowledge that inflation is still not under complete control, particularly with housing costs continuing to rise, the latest data has boosted hopes for an interest rate cut. Paul Ashworth, chief North America economist for Capital Economics, noted that “inflation appears to have been successfully tamed, but… it hasn’t been completely vanquished” [1].
The data also shows that price pressures are easing for key household items. Grocery prices, which were surging just a few years ago, were unchanged from July to August and are up less than 1% from a year ago [1]. The cost of petrol, another staple, has fallen by more than 10% from August 2023 [1].
However, prices for other items continued to climb, with airline tickets, car insurance, rent, and other housing costs growing more expensive [1]. This has led to caution among analysts, with Brian Coulton, Fitch Rating’s chief economist, warning that “this serves as a bit of a reminder not to get too carried away with a few months of better inflation data” [1].
Central banks, including the Federal Reserve, began raising borrowing costs two years ago to combat rising inflation, which was sparked by pandemic-related supply issues and government spending [1]. Russia’s invasion of Ukraine in 2022 further fueled global inflation, with US inflation peaking at 9.1% in June 2022 [1]. Since then, inflation has decreased, but remains above the 2% rate considered healthy [1].
While the recent slowdown in inflation is welcome news, consumers are still feeling the pinch. Jasmine Loeber, a stay-at-home mother from Pennsylvania, was so shocked by price increases in recent years that she began posting on social media about her expensive supermarket hauls [1]. However, she has noticed that prices have started to become more affordable, with discounts becoming more common [1].
As the Federal Reserve prepares to meet next week, the latest inflation data has added to speculation about the direction of interest rates. While a rate cut is now more likely, analysts caution that the stickiness of services inflation will continue to influence the Fed’s decisions in the coming months [1].
References:
[1] https://www.nytimes.com/live/2024/09/11/business/cpi-inflation-fed
