Inflation Falls Below 3% for First Time Since 2021

Inflation is mostly holding steady, according to new data that may sway the Federal Reserve to cut interest rates in September.

The Consumer Price Index (CPI) for all items rose 2.9% for the 12 months ending in July, before seasonal adjustment, the U.S. Bureau of Labor Statistics (BLS) reported Aug. 14. That’s below expectations and down slightly from the 3% year-over-year increase notched in June. Significantly, it’s also the first time the CPI landed below 3% since 2021.

On a monthly basis, the CPI increased 0.2%, after declining 0.1% in June.

The index for shelter rose 0.4% in July, accounting for nearly 90% of the monthly increase in the all items index, according to the BLS. The energy index was unchanged over the month, after declining in the two preceding months. The index for food increased 0.2% in July, as it did in June.

Core inflation—which excludes the more volatile food and energy prices—rose 0.2% on a monthly basis and 3.2% year-over-year, a slight dip from the 3.3% rise in June. That figure met economists’ expectations.

“Over the last several months, various inflation indicators have suggested that inflation is gradually falling,” said Justin Ladner, senior labor economist at SHRM.

Wednesday's CPI report comes on the heels of Tuesday’s Producer Price Index, or PPI, which is seen as a gauge of wholesale inflation and showed prices up just 0.2% in July and about 2.2% from a year ago. That number is now very close to the Fed’s 2% goal.

The inflation data might be what's needed for the Federal Reserve to cut interest rates. That would be a welcome move for employees, who have continued to struggle with their financial wellness. The Federal Reserve Bank of New York reported earlier this month that credit card debt is at an all-time high, with Americans now owing a record $1.14 trillion.

Bank of America in May found that employees are even more concerned about inflation this year than they were last year: 76% of workers say the cost of living is outpacing growth in their salary or wages, a big jump from the 67% who said so in June 2023. And 66% of workers said they feel stressed about their finances.

Real Earnings

Meanwhile, real average hourly earnings increased 0.7%, seasonally adjusted, from July 2023 to July 2024, the BLS reported separately Aug. 14. The change in real average hourly earnings, combined with a decrease of 0.3% in the average workweek, resulted in a 0.4% increase in real average weekly earnings over this period.