Inflation in the U.S. dropped to its lowest level in over three years last month, offering a positive sign for the economy as the presidential race nears its end. Consumer prices rose 2.4% in September compared to the previous year, slightly down from August’s 2.5%, marking the smallest increase since February 2021. On a month-to-month basis, prices grew by 0.2% from August, maintaining the same pace as the previous month, according to the Labor Department.
However, “core” inflation, which excludes volatile food and energy costs, remained elevated, driven by rising prices for medical care, clothing, auto insurance, and airline tickets. Core prices increased 3.3% over the past year and 0.3% from August, an important indicator for economists who see it as a more reliable predictor of future inflation trends.
Overall, the figures suggest inflation is gradually moving toward the Federal Reserve’s 2% target, albeit slowly and unevenly. A key factor was the cooling of apartment rental prices, a relief for many consumers as housing inflation eases. Gas prices fell 4.1% from August to September, helping keep overall inflation down, while grocery prices rose 0.4% but are just 1.3% higher than a year ago. Restaurant food prices increased 0.3% in September, while clothing prices jumped 1.1% from August.
This improvement in inflation follows a positive jobs report showing accelerated hiring in September and a drop in unemployment to 4.1%. Additionally, the economy expanded at an annual rate of 3% from April to June, with similar growth likely in the July-September quarter.
Lower inflation, strong job growth, and economic expansion could reduce Donald Trump’s lead over President Joe Biden on economic issues in the presidential race. Recent polls show Vice President Kamala Harris gaining ground on who voters trust to manage the economy. Despite these gains, many voters still rate the economy poorly due to the significant price increases of the last three years.
The Federal Reserve, which cut its key rate by a half-point last month, has hinted at more gradual rate cuts in the future. Officials have signaled a cautious approach, with the possibility of two quarter-point cuts in November and December. Federal Reserve officials, including Dallas Fed President Lorie Logan, have stressed the need for a careful, measured pace in further rate reductions.
Inflation surged globally during the post-pandemic recovery, worsened by Russia’s invasion of Ukraine, which disrupted energy and food supplies. Inflation in the U.S. peaked at 9.1% in June 2022, but Goldman Sachs economists expect core inflation to drop to 3% by the end of 2024. Unless conflicts in the Middle East escalate significantly, a resurgence of inflation is unlikely.
While inflation has affected the public’s view of the economy, rising wages and incomes have recently outpaced costs, helping households cope better. The Census Bureau reported that inflation-adjusted median household incomes rose 4% in 2023, returning to pre-pandemic levels. In response to higher prices, many consumers have shifted to private labels and discount stores, forcing companies like PepsiCo to slow their price increases due to reduced sales volume.