Inflation falls to lowest level in more than 3 years. Here’s what it means: NPR
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Consumer prices rose 2.5% in August from a year earlier, the smallest annual increase since early 2001. Grocery prices have largely stabilized after sharp increases in the previous two years, but the cumulative increase continues to weigh on many consumers.
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Inflation fell to a 3-1/2-year low in August, paving the way for the Federal Reserve to start cutting interest rates next week.
Consumer prices in August increased 2.5% compared to the same period last year, according to a report from the Department of Labor on Wednesday. This was the smallest annual increase since February 2021.
Here are four things to know about your living expense report.
Housing costs are still rising, but gas is cheaper
Housing costs were the biggest driver of inflation last year, rising 5.2%. By contrast, gasoline prices fell more than 10%.
Overall, commodity prices have fallen nearly 2% over the past twelve months, led by sharp declines in used car and truck prices. However, the cost of services such as haircuts and auto repairs has continued to rise.
Grocery prices have largely stabilized, but they are not falling.
One of the shopping places feel the pain of inflation the most are at the supermarket. People buy groceries every week, so it’s a constant reminder that milk and eggs are more expensive than they used to be. But after rising sharply in 2022 and 2023, grocery prices have largely stabilized. They’ve risen less than 1% over the past twelve months and were flat from July to August.
Federal Reserve Governor Chris Waller understands that’s little consolation for those who want to see lower supermarket prices
“I don’t deny any of the pain and suffering that people are going through because of this,” Waller told an audience at Notre Dame last week. “I go to the grocery store myself. I’ll look at some of the prices and say, ‘Holy shit, no. I’m not buying that.’”
But Waller said grocery prices are unlikely to return to 2019 or 2020 levels. Instead, he said, rising wages will gradually catch up with higher prices, allowing shoppers to fill their carts again. Grocery prices have increased 25.5% since the start of the pandemic, while average wages have increased 23.5%, according to the Labor Department.
Inflation remains a major political issue
Prices are now rising at the slowest pace since President Biden’s second month in office, but many people are still frustrated by the three-year streak of price increases.
Both former President Trump and Vice President Harris emphasized the high cost of living during their debate Tuesday night.
“We have inflation that very few people have ever seen before — probably the worst in the history of our country,” Trump declared, exaggerating the pace of price increases, which will peak at 9.1% in 2022. “This is a disaster for the people, for the middle class but for everyone.”
Trump has offered few tangible solutions to inflation, with many economists warning that his proposal for a 10% tariff on all imports and even higher tariffs on imports from China would push prices up, not down.
Harris also echoed voters’ frustration with high prices, saying “housing costs are too high for too many people.”
The Federal Reserve is ready to start cutting interest rates, slowly.
The central bank has tried to curb inflation by pushing interest rates to their highest levels in more than two decades, making it more expensive to borrow money to buy a car, finance a business or carry a credit card balance.
While inflation is still above the Fed’s 2% target, it is moving in that direction. So now the Fed is prepared to start cutting interest rates to avoid slowing the economy unnecessarily and putting people out of work.
“The upside risks to inflation have diminished and the downside risks to employment have increased,” Fed Chair Jerome Powell said last month“It’s time for a policy adjustment.”
Investors remain uncertain whether the Fed will start with a modest quarter-point rate cut or a more aggressive half-point cut. Wednesday’s inflation report led markets to expect a smaller cut, disappointing some investors and prompting a sell-off in stocks. Details in the report showed slightly firmer monthly inflation, which is seen as likely to prompt the Fed to proceed cautiously.