Inflation Up 2.5 Percent in August Over 2023, a Post-Pandemic Low, as Federal Reserve Readies Rate Cut

WASHINGTON — The post-pandemic spike in American inflation eased further last month with year-over-year price increases reaching a three-year low, clearing the way for the Federal Reserve to cut interest rates next week.Wednesday’s report from the Labor Department showed that consumer prices rose 2.5 percent in August from a year earlier. It was the fifth straight annual drop and the smallest such increase since February 2021. Between July and August, prices rose just 0.2 percent.Excluding volatile food and energy costs, so-called core prices rose 3.2 percent in August from 12 months earlier, the same as in July. On a month-to-month basis, core prices rose 0.3 percent last month, a pickup from July’s 0.2 percent increase. Economists closely watch core prices, which typically provide a better read of future inflation trends.For months, cooling inflation has provided gradual relief to America’s consumers, who were stung by the price surges that erupted three years ago, particularly for food, gas, rent and other necessities, even as the cumulative impact of the inflation wave has led to stubbornly higher prices for everyday staples. Inflation peaked in mid-2022 at 9.1 percent, the highest rate in four decades.Fed officials have signaled that they’re increasingly confident that inflation is falling back to their 2 percent 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.The latest inflation figures could inject themselves into the presidential race in its final weeks. President Trump has heaped blame on Vice President Harris for the jump in inflation, which erupted in early 2021 as global supply chains seized up, causing severe shortages of parts and labor. Critics contend that high levels of federal stimulus spending were also a factor fueling the inflationary wave.Ms. Harris has proposed subsidies for home buyers and builders in an effort to ease housing costs and backs a federal ban on price-gouging for groceries. Trump has said he would boost energy production to try to reduce overall inflation.A key reason why inflation eased again in August was that gas prices tumbled by about 10 cents a gallon last month, according to the Energy Inflation Administration, to a national average of about $3.29.Economists also expect the government’s measures of grocery prices and rents to rise more slowly. Though food prices are on average roughly 20 percent more expensive than before the pandemic, they have barely budged over the past year.Another potential driver of slower inflation is that the cost of new apartment leases has started to cool as a stream of newly built apartments have been completed.Americans’ paychecks are also growing more slowly — an average of about 3.5 percent annually, still a solid pace — which reduces inflationary pressures. Two years ago, wage growth was topping 5 percent, a level that can force businesses to sharply raise prices to cover their higher labor costs.In a high-profile speech last month, the Fed chairman, Jerome Powell, noted that inflation was coming under control and suggested that the job market was unlikely to be a source of inflationary pressure.Consumers have propelled the economy for the past three years. They are increasingly turning to debt to maintain their spending, though, and credit card and auto delinquencies are rising. That is raising concerns that they may have to rein in their spending soon. Reduced consumer spending could lead more employers to freeze their hiring or even cut jobs.Associated Press

Inflation Up 2.5 Percent in August Over 2023, a Post-Pandemic Low, as Federal Reserve Readies Rate Cut

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