Inflation in the US eased further last month, according to official data, boosting hopes that the Federal Reserve will lower interest rates next week. Consumer prices increased by 2.5% in the year leading up to August, as costs for gasoline, used vehicles, and other items declined. This marked the slowest growth since February 2021, down from July’s 2.9%, despite a surprise rise in housing costs.
The Labor Department’s report comes during a presidential campaign where the rising cost of living has been a major concern. Analysts believe the data strengthens the chances of a 0.25 percentage point interest rate cut at the Fed’s upcoming meeting but reduces the likelihood of a larger cut.
“Inflation appears to be largely under control, but persistent housing inflation is still a concern,” said Paul Ashworth, chief North America economist at Capital Economics. The report shows that price pressures on key household goods are easing. Grocery prices, which had surged in recent years, remained steady from July to August and are up less than 1% year-over-year. Gasoline prices also dropped, both month-over-month and by over 10% since August 2023. However, some items continued to rise in cost.
Excluding food and energy, which are subject to volatility, prices increased 3.2% over the past year, with higher costs for airfare, car insurance, rent, and housing. Brian Coulton, chief economist at Fitch Ratings, cautioned against over-optimism, noting that services inflation remains stubbornly high. While not enough to prevent a rate cut this month, it may slow the pace of future cuts.
The Fed, along with other central banks, began raising interest rates two years ago to combat rising inflation, which surged globally in 2021 due to pandemic-related supply chain disruptions and increased government spending. The war in Ukraine in 2022 further exacerbated inflation by driving up oil prices. US inflation peaked at 9.1% in June 2022 but has since fallen closer to the 2% target.
Jasmine Loeber, a stay-at-home mom from Pennsylvania, said she was initially shocked by the rising prices, prompting her to share her pricey grocery bills on social media. However, she has noticed a recent drop in costs, especially at discount stores, allowing her family to take their first vacation in three years. Despite this, the high cost of housing still weighs heavily on her, leaving her unsure if she will vote in the upcoming election.
The latest inflation figures drew little attention amid post-debate discussions and the commemoration of the September 11th attacks. Jasmine, living in a key battleground state, expressed skepticism about political promises, saying, “It’s hard to believe they can actually fix it.”
