US inflation continues to ease, boosting hopes for interest rate cut
Inflation in the US continued to decline in August, raising optimism that the Federal Reserve may cut interest rates in its upcoming meeting. Official figures from the Labour Department show consumer prices rose by 2.5% over the past year, marking the slowest pace since February 2021. This is a decrease from the 2.9% increase recorded in July, driven by falling prices for petrol, used cars, and trucks, despite a surprise rise in housing costs.
The figures arrive as rising living costs remain a key issue in the ongoing presidential campaign. Analysts suggest the data increases the likelihood of an interest rate cut by the Fed, though it may be less substantial than anticipated.
“Inflation appears to have been successfully tamed, but housing inflation still hasn’t moderated as quickly as hoped,” said Paul Ashworth, chief North America economist at Capital Economics. He added that while the outlook is positive, inflation is not yet fully under control.
When excluding food and energy prices, which tend to fluctuate, core inflation rose by 3.2% over the year, with airline tickets, car insurance, rent, and other housing costs driving the increase. Month-on-month inflation remained steady at 0.2%.
Brian Coulton, chief economist at Fitch Ratings, cautioned against premature optimism, noting, “This is a reminder not to get carried away with a few months of better inflation data.” He believes the Fed is still on track to cut rates this month but will likely proceed cautiously due to persistent inflation in the services sector.
Central banks, including the Federal Reserve, began raising borrowing costs two years ago to curb the global inflation surge that started in 2021. The rise in prices was initially fueled by supply chain disruptions and increased government spending during the pandemic, followed by a spike in oil prices after Russia’s invasion of Ukraine in 2022. US inflation peaked at 9.1% in June 2022 but has since steadily declined toward the 2% target that is considered healthy for the economy.
