Inflation dropped again on an annual basis in August, new data out today shows, further bolstering expectations that the Federal Reserve will cut interest rates later this month.
The Consumer Price Index (CPI) for all items rose 2.5% for the 12 months ending in August, before seasonal adjustment, the U.S. Bureau of Labor Statistics (BLS) reported Sept. 11. That’s the smallest 12-month increase since February 2021.
It’s also down from the 2.9% year-over-year increase notched in July, and down sharply from a high of 9.1% back in 2022.
On a monthly basis, the CPI increased 0.2%.
The index for shelter rose 0.5% in August and was the main factor in the all-items increase, according to the BLS. The food index increased 0.1% in August, after rising 0.2% in July. The index for food away from home rose 0.3% over the month, while the index for food at home was unchanged. The energy index fell 0.8% over the month, after being unchanged the preceding month.
Core inflation—which excludes the more volatile food and energy prices—rose 0.3% in August, after rising 0.2% in July.
“Recent economic evidence increasingly supports the narrative that we’re past the high-inflation period of 2021-2022, due in large part to the Fed’s willingness to raise interest rates and keep them high for a prolonged period,” said Justin Ladner, senior labor economist at SHRM. “This policy has been possible because the overall economy, especially the labor market, has been remarkably resilient during this period, which has allowed the Fed to fight inflation without suffering many of the negative consequences that typically accompany high interest rates.”
Now that inflation is steadily trending toward the Fed’s target level and the labor market is cooling, the CPI report should reinforce the Fed’s motivation to begin lowering interest rates, Ladner added.
Lowering interest rates would largely be a welcome move for employees, who have continued to struggle with their financial wellness.
Real Earnings
Real average hourly earnings increased 1.3%, seasonally adjusted, from August 2023 to August 2024, the BLS reported separately Wednesday. The change in real average hourly earnings combined with a decrease of 0.3% in the average workweek resulted in a 0.9% increase in real average weekly earnings over this period.
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