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Inflation dropped in August to its lowest level in over three years, bolstering the Federal Reserve’s case for a possible interest rate cut next week. However, prices remain high for many Americans.
The Labor Department reported Wednesday that the consumer price index (CPI) increased by 0.2% in August, matching economists’ expectations. Prices increased 2.5% in August compared to last year, slightly below LSEG estimates and down from 2.9% in July, marking the lowest level since February 2021. Core prices, excluding volatile items like gasoline and food, rose 0.3% from the previous month, slightly above the 0.2% forecast. Year-over-year, core prices climbed 3.2%, matching expectations and unchanged from last month.
The report shows inflation is easing but still above the Federal Reserve’s 2% target. This softer inflation data comes as the Fed prepares for a critical meeting, where they are expected to cut interest rates. In July, the central bank held rates at a 23-year high, but Fed Chair Jerome Powell hinted in August that it’s time to lower rates.
“The Fed is widely expected to cut interest rates by 0.25% next week, and today’s more-or-less on-target CPI reading keeps that very much in play,” said Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley, according to a Fox Business report. “That may disappoint those investors hoping for a bigger cut, but with inflation seemingly under control, the markets will likely turn back their focus to the economic growth side of the equation — especially the employment picture.”
Why aren’t people feeling better about inflation coming down? because prices are still 11.4% higher through August than they would have been if inflation had continued growing at the Fed’s preferred 2% target!
Even when the 2% target is eventually reached, prices will… pic.twitter.com/ErcdB2L8GD
— Strider Elass (@StriderElass) September 11, 2024
High inflation has put significant financial strain on U.S. households, particularly lower-income families, who spend a more substantial portion of their income on essentials like food and rent.
In August, shelter costs were a significant driver of core inflation, which rose 0.5% from the previous month and 5.2% year-over-year, accounting for over 70% of the 12-month increase in core inflation. Other notable price jumps include motor vehicle insurance (+16.5%), medical care services (+3.2%), recreation services (+3.2%), and education (+2.3%). After five months of decline, airline fares rose 3.9% in August compared to July.
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