Inflation cooled further in August, falling to a three-year low and cementing views that the Federal Reserve will soon begin cutting interest rates.
Prices rose 2.5% in the 12 months ending in August, down from 2.9% in July, with falling gasoline prices a big part of the decline, according to the latest figures from the Bureau of Labor Statistics. Excluding volatile food and energy prices, core inflation is believed to have been unchanged at 3.2%.
Housing costs accounted for more than 70% of the year-on-year increase.
The pace of increases in the cost of food eased last month, and used vehicle and energy prices were lower than they were in July. Falling oil prices could mean that gas prices continue to fall in the coming weeks.
Fed Chairman Jerome Powell said last month “the time has arrived” for rate cuts, all but sealing the move at the central bank’s two-day policy-setting meeting Sept. 17-18. Less certain is how big a cut the Fed intends to make, likely a quarter or half a percentage point. Further cuts are likely to come later this year and next .
Currency traders on Wednesday increased bets that the Fed would loosen policy at a less aggressive pace.
“Overall, inflation appears to have been tamed successfully, but with housing inflation still refusing to moderate as quickly as hoped, it has not been fully overcome. Under these circumstances, we expect the Fed to take a measured approach to cutting interest rates,” Paul Ashworth , chief economist for North America at Capital Economics, said in a research note.
Inflation peaked at 9.1% in June 2022 – a four-decade high – as the economy recovered from the pandemic recession. Recent months have seen a cooling labor market, with hiring and wage gains slowing and the US economy seemingly headed for a so-called “soft landing” thereby avoiding a recession.
