Annual US consumer price inflation fell to 2.5% in August, a 3-year low

WASHINGTON (AP) – A post-pandemic spike in U.S. inflation eased further last month as year-over-year price growth hit a three-year low, clearing the way for the Federal Reserve to cut interest rates and likely shape the economic debate. The last week of the presidential race.

on wednesday Report The Labor Department showed that consumer prices rose 2.5% in August from a year earlier, down from 2.9% in July. It was the fifth annual drop and the smallest since February 2021. Prices rose just 0.2% from July to August.

Excluding volatile food and energy costs, so-called core prices rose 3.2% in August from a year earlier, the same as in July. On a month-over-month basis, core prices rose 0.3%, a slight pickup from July's 0.2% increase. Economists look closely at core prices, which usually provide a better reading of future inflation trends.

“Today's report will add to the Fed's confidence that inflation is indeed on a sustainable path toward 2%,” the Fed's target level, Carl Weinberg, chief economist at High Frequency Economics, wrote in a note to clients.

For months, cooling inflation has provided gradual relief to American consumers, who were shocked three years ago by rising prices, particularly for food, gas, rent and other essentials. Inflation peaked at 9.1% in mid-2022, the highest rate in four decades.

And Americans' paychecks have grown steadily over the past three years. Aggregate incomes have even roughly outpaced inflation over the past 18 months, helping more households manage higher prices. Census Bureau on Tuesday Report That median inflation-adjusted household income rose 4% last year to above $80,000, essentially matching the 2019 peak.

Wednesday's inflation figures followed a presidential debate Tuesday night in which former President Donald Trump attacked Vice President Kamala Harris for rising prices that began months after the Biden-Harris administration took office, when global supply chains were seized and parts shortages were severe. and labor

During the debate, Trump falsely characterized the scope for rising inflation when he claimed, “Our country has probably had the highest inflation in history.” In 1980, inflation reached 14.6% – well above the 2022 peak.

A key factor in last month's decline in overall inflation was the third decline in gas prices in the past four months: Average gas prices fell 0.6% from July to August and fell 10.6% from a year ago. And used cars fell 1% last month. Measured from a year ago, used car prices fell 10.4%.

Grocery prices were unchanged from July to August, reducing food costs even though they remain much higher than they were three years ago. Over the past year, grocery prices have risen just 0.9%, matching the pace of pre-pandemic food inflation.

Still, many Americans are taking steps to try to stretch their budgets. Kelsey Aubrey, who lives in North Palm Beach, Florida, and was shopping at discount grocer Aldi on Tuesday, said she usually visits four or five stores in search of the lowest grocery prices.

“We hope from store to store, we try to save where we can,” he said. “Our bills are still quite high. And we're working a ton to pay the bills.”

The tick-up in core inflation from July to August reflects an acceleration in housing costs and some increases in airfares and hotel room prices, which may prove temporary. Air fares rose 3.9% from July to August after falling the previous five months. Hotel room prices rose 1.8% last month; They had fallen in two of the previous three months.

Fed officials, who are closely watching housing costs, expect them to cool more consistently. The median rent for a new lease rose just 0.9% in August from a year earlier, to $1,645 a month, according to real estate brokerage Redfin. But the government's measure includes all rents, for people who have stayed in their apartments for years. The slowdown in new hires takes time to show in government data. Last month, rental costs rose 5.2% from a year earlier, according to the government's Consumer Price Index.

Fed policymakers have indicated that they are increasingly confident that inflation is returning to their 2% target and are now shifting their focus to supporting the job market, which is Constant cooling. As a result, they are set to start cutting their benchmark interest rates from a 23-year high next week in hopes of boosting growth and hiring.

A modest quarter-point cut is widely expected. The pickup in core inflation makes it unlikely that the Fed will consider cutting its key rate by a half-point larger than usual next week, as some Wall Street traders had expected. Share prices fell As a result, the broader S&P 500 index was down about 1.6% in mid-morning trading.

Still, over time, a series of Fed rate cuts will reduce the cost of borrowing across the economy, including mortgages, auto loans and credit cards.

Harris made the offer during the presidential campaign Subsidy for home buyers And builders in an effort to ease housing costs. He supports a federal Prohibition on price increase For groceries, Trump said he would increase energy production to reduce overall inflation.

Several trends suggest that inflation will continue to moderate. Those signs include oil prices hovering around $67 a barrel early Wednesday, down from a high of $80 last month.

Americans' paychecks are also growing more slowly—an average of about 3.5% annually, still a solid pace—which reduces inflationary pressures. Two years ago, wage growth topped 5%, a level that could force businesses to raise prices faster to cover their higher labor costs.

A High-profile speech Last month, Fed Chair Jerome Powell noted that inflation was coming under control and suggested that the job market may not be the source of inflationary pressures.