In August, consumer prices in the United States increased at the slowest pace since early 2021, according to a report released by the Bureau of Labor Statistics.
The Consumer Price Index (CPI), a key measure of inflation, rose 2.5% compared to the same time last year, a notable decrease from the 2.9% annual rise seen in July. This marked the lowest annual inflation rate in three years and aligned with economists’ predictions.
On a month-over-month basis, consumer prices increased by 0.2%, maintaining the same rate as in July. Meanwhile, the “core” CPI, which excludes more volatile categories like food and energy, saw a slight rise of 0.3% from July and an annual increase of 3.2%. Although inflation has cooled significantly, it remains above the Federal Reserve’s target of 2%.
Housing costs continue to be a major contributor to inflation. In August, the shelter index increased by 5.2% year-over-year and by 0.5% on a monthly basis, slightly higher than the previous month. These rising housing costs have been a persistent driver of core inflation. Other factors such as food prices remained stable, while energy prices showed some decline, with the energy index dropping 0.8% in August and 4% on an annual basis.
Notably, certain categories like motor vehicle insurance and medical care saw price increases, with motor vehicle insurance climbing by 16.5% over the past year.
The Federal Reserve is widely expected to respond to the latest inflation data by cutting interest rates at its upcoming policy meeting in September. While some had anticipated a larger rate cut of 50 basis points, the core inflation reading has made a quarter-point cut more likely. The Fed’s primary focus will now be on balancing inflation control with broader economic conditions, such as a weakening labor market.
Chairman Jerome Powell recently emphasized that policy adjustments are needed, but there is caution around how rapidly rates should be reduced, given lingering inflationary pressures in certain sectors.
Despite the easing of inflationary pressures, economists remain cautious. Persistent inflation in housing costs and some services suggests that the path to achieving the Fed’s 2% inflation target may take longer than expected. However, real wage gains have begun to outpace inflation, providing some relief to American consumers.
With input from CNN, Yahoo Finance, and Axios.
