The post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low, clearing the way for the Federal Reserve to cut interest rates next week, the Associated Press reports.
Today’s report from the Labor Department showed that consumer prices rose 2.5% in August from a year earlier. It was the fifth straight annual drop and the smallest such increase since February 2021. From July to August, prices rose just 0.2%.
Excluding volatile food and energy costs, so-called “core” prices rose 3.2% in August from 12 months earlier, the same as in July. On a month-to-month basis, core prices rose 0.3% last month, a pickup from July’s 0.2% increase. Economists closely watch core prices, which typically provide a better read of future inflation trends.
Fed officials have signaled that they’re increasingly confident that inflation is falling back to their 2% target and are now shifting their focus to supporting the job market, which is steadily cooling. As a result, the policymakers are poised to begin cutting their key rate from its 23-year high in hopes of bolstering growth and hiring.
A modest quarter-point cut is widely expected next week. Over time, a series of rate cuts should reduce the cost of borrowing across the economy, including for mortgages, auto loans, and credit cards.
