Washington — The United States has seen a welcome relief in inflation rates as the post-pandemic spike in prices has eased further in the month of August. With year-over-year price increases reaching a three-year low, the Federal Reserve is now in a position to cut interest rates next week, providing a much-needed boost to the economy.
According to the latest report from the Labor Department, consumer prices rose by 2.5% in August from a year earlier, marking the fifth consecutive annual drop and the smallest increase since February 2021. On a month-to-month basis, prices rose by just 0.2%, a significant decrease from the previous month.
Excluding volatile food and energy costs, core prices rose by 3.2% in August from 12 months earlier, the same as in July. This steady increase in core prices is closely monitored by economists as it provides a better indication of future inflation trends.
This cooling of inflation has come as a relief to American consumers who have been struggling with price surges for the past three years. The peak of inflation, which occurred in mid-2022, saw a staggering 9.1% increase, the highest rate in four decades.
Federal Reserve officials have expressed confidence that inflation is now falling back to their target of 2% and are shifting their focus to supporting the job market, which has been experiencing a gradual slowdown. As a result, the policymakers are expected to begin cutting their key rate from its 23-year high in an effort to boost growth and hiring.
A modest quarter-point cut is widely anticipated next week, with the potential for more rate cuts in the future. This move is expected to reduce the cost of borrowing across the economy, including for mortgages, auto loans, and credit cards.
The latest inflation figures could also have an impact on the upcoming presidential race. Former President Donald Trump has been quick to blame Vice President Kamala Harris for the rise in inflation, which occurred in early 2021 due to global supply chain disruptions. Harris has proposed subsidies for home buyers and builders to ease housing costs and supports a federal ban on price-gouging for groceries. Meanwhile, Trump has stated that he would increase energy production to combat inflation.
One of the main reasons for the easing of inflation in August was the drop in gas prices by about 10 cents per gallon, according to the Energy Information Administration. The national average for gas prices now stands at around $3.29.
Economists also predict that the government’s measures of grocery prices and rents will rise at a slower pace. While food prices are still about 20% higher than pre-pandemic levels, they have barely increased in the past year.
Another factor contributing to the slowdown in inflation is the cooling of new apartment lease costs. With a steady stream of newly built apartments being completed, the median rent for a new lease has only risen by 0.9% in August from a year earlier, to $1,645 per month. However, the government’s measure includes all rents, including those for long-term tenants. It takes time for the slowdown in new rents to reflect in the data. In July, rental costs rose by 5.1% from a year ago, according to the government’s consumer price index.
Additionally, wage growth has also slowed down, with an average increase of 3.5% annually. This decrease in wage growth reduces inflationary pressures as businesses do not need to raise prices to cover higher labor costs. Two years ago, wage growth was at a high of 5%, which can force businesses to increase prices significantly.
In a highly anticipated speech last month, Fed Chair Jerome Powell acknowledged that inflation was under control and suggested that the job market was unlikely to be a source of inflationary pressure.
Consumer spending has been the driving force behind the economy for the past three years. However, as consumers increasingly rely on debt to maintain their spending, credit card and auto delinquencies have been on the rise. This has raised concerns that consumers may need to cut back on their spending, which could lead to employers freezing hiring or even cutting jobs.
In conclusion, the recent easing of inflation in the United States is a positive development for the economy and its consumers. With the Federal Reserve expected to cut interest rates next week, there is hope for a further boost to the economy and job market. As we continue to navigate through the post-pandemic era, it is important to keep a close
