Consumer prices rose at the slowest annual pace in three years in August, according to the latest Bureau of Labor Statistics data released Wednesday morning, according to a closely watched report on U.S. inflation.
The consumer price index (CPI) rose 2.5% year-on-year in August, slowing compared to the 2.9% annual rise in July and the lowest annual rate since the beginning of 2021. The annual rate of increase was also in line with economists’ expectations.
The index rose 0.2% month-on-month, matching both July’s month-on-month increase and economist expectations.
On a “core” basis, excluding volatile food and gas prices, prices in August rose 0.3% from the previous month and 3.2% from a year earlier. Core prices in July rose 0.2% from the previous month, and rose 3.2% on an annual basis.
Read more: Mobile phones, furniture and used cars: Prices are easing here as inflation cooldown continues
Although inflation has moderated, it remains above the Federal Reserve’s 2% annualized target. However, recent economic indicators, including employment data that indicate a weakening labor market, point to a near certainty of a rate cut by the end of the Fed’s next policy meeting on September 18th.
“It’s time to adjust policy,” Federal Reserve Chairman Jerome Powell said last month at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.
Read more: What the Fed’s interest rate decisions mean for bank accounts, CDs, loans, and credit cards
The question is how quickly the Fed will lower interest rates.
“This is not the CPI report the market was hoping for,” Seema Shah, chief global strategist at Principal Asset Management, wrote in response to the report. “Core inflation is higher than expected, making the path for the Fed to cut rates by 50 basis points more complicated.”
“While these numbers are not an impediment to next week’s policy action, hawks on the committee see today’s CPI report as evidence that the last mile of inflation must be approached with great care. This is a terrible reason for policy failure.” A 25 basis point cut. ”
As of Tuesday, markets were pricing in a nearly 100% chance that the U.S. Federal Reserve would cut interest rates by the end of its September meeting. But after the data was released, the odds of a 25-basis point rate cut versus a 50-basis point rate cut were split 56-44 and 85-15 last week, according to the CME FedWatch tool.
But the Fed’s decision won’t all come down to inflation, as the U.S. economy added fewer jobs than expected in August.
story continues
“Chairman Powell has made it clear that the progress in inflation to date is sufficient to justify starting to cut interest rates,” said Ellis Osenbaugh, head of investment strategy at JPMorgan Wealth Management, on Wednesday. That doesn’t change with books.” “Last week’s labor market data may split the odds between a 25bps rate cut and a 50bps rate cut, but today’s inflation data leans in favor of a 25bps rate cut.”
sticky shelter, food prices
One notable aspect of inflation statistics is the shelter index. The index rose 5.2% on an unadjusted annualized basis, up slightly from July’s numbers. According to the BLS, the index rose 0.5% from the previous month, following a 0.4% rise in July, and was “the main factor behind the rise in all items.”
Economists say the rise in core inflation is mainly due to sticky shelter inflation.
Read more: What is inflation? How does it affect you?
This trend continued last month, with the rent index and owner-equivalent rent (OER) increasing by 0.4% and 0.5%, respectively, from July to August. Owner’s equivalent rent is the hypothetical rent that a homeowner would pay for the same property.
The non-home accommodation index rose 1.8% in August, after rising just 0.2% in July.
Meanwhile, the energy index fell by 0.8% in August after being flat in July as gasoline prices fell by 0.6% last month. On an annual basis, the Energy Index fell by 4%.
The food index rose 2.1% in August compared to last year, and food prices rose 0.1% month-on-month, proving to be a troublesome category for inflation. The index for food at home remained flat from July to August, while the index for food outside the home rose by 0.3%.
Other metrics that have seen notable increases over the past year include auto insurance (16.5%), health care (3%), recreation (1.6%), and education (3.1%).
Used cars and trucks, home equipment and businesses, health care, communications and recreation were among the indexes that declined during the month, according to the BLS.
Federal Reserve Chairman Jerome Powell holds a press conference after two days of Federal Open Market Committee meetings on interest rate policy in Washington, U.S., May 1, 2024. REUTERS/Kevin Lamarque (REUTERS / Reuters)
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Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canalEmail LinkedIn, alexandra.canal@yahoofinance.com.
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