U.S. inflation stretched its streak of tick downs to five months straight in August with overall prices on consumer goods and services rising by 2.5% last month, down from July’s 2.9% annual rate, according to the latest federal data released Wednesday. On a monthly basis, prices were up 0.2% from July to August.
Core inflation, which strips out volatile food and energy prices, came in at 3.2% in August, unchanged from July but up 0.3% month-over-month. Housing-related costs were the main driver of inflation last month with the shelter index rising 0.5% from July. Prices on food purchased away from home rose 0.3% from July to August while grocery prices held steady on a monthly basis but are up 0.9% from a year ago.
The price indexes for used cars and trucks, household furnishings and operations, medical care, communication, and recreation were among those that saw a monthly decrease in August, per the U.S. Department of Labor.
Regional inflation for Mountain West states, which include Utah, saw a 12-month rate of 2.0% in August, well below the national average but up 0.1% from July.
The August data from the Labor Department’s Consumer Price Index finds annual U.S. inflation at its lowest level in three years. Inflation’s continued downward momentum should serve as positive fodder for the Federal Reserve ahead of its policy meeting next week, where the monetary body is widely expected to make a cut to its benchmark federal funds rate. If a reduction is approved by the Fed’s Open Market Committee, it would mark the first rate reduction in four years.
Fed signals green light for rate cut
At an annual meeting of global central bankers in Jackson Hole, Wyoming, last month, Federal Reserve Chairman Jerome Powell sent his strongest signal yet that the monetary body is ready to start making reductions to its benchmark federal funds rate, which has stood at a two-decade high since July 2023.
“The time has come for policy to adjust,” Powell said. “The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
While most economists have been predicting a rate cut at the Fed’s September policy meeting, until last month Powell had approached the topic with mostly soft indications and qualifying language. But his comments at the bankers’ meeting were widely interpreted as a confirming moment.
Should the Fed make a downward adjustment next week, it would mark the first reduction since March 2020 and the start of a reversal to one of the most aggressive strategies undertaken by the U.S. central bank aiming to quash inflationary pressures fueled by unprecedented economic impacts of the COVID-19 global health crisis.
The Fed’s overnight intrabank lending rate has stood at 5.25% to 5.5% since last summer and is the highest in 23 years after a series of 11 straight increases levied earlier by the monetary body in its efforts to cool off a U.S. economy that was running red-hot amid the pandemic recovery.