US inflation falls to its lowest level in over three years

[Pelican Press 0]

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US inflation falls to its lowest level in over three years

Inflation in the US continued to cool last month, official figures showed, making experts confident the US central bank will cut interest rates next week.

Consumer prices rose 2.5% over the 12 months to August, as prices for petrol, used cars and trucks, and some other items fell.

That marked the slowest pace since February 2021 and was down from 2.9% in July.

The figures offer welcome news for the White House, which has been on the defensive over the economy in this year’s presidential campaign.

“Overall, inflation appears to have been successfully tamed but, with housing inflation still refusing to moderate as quickly as hoped, it hasn’t been completely vanquished,” said Paul Ashworth, chief North America economist for Capital Economics.

Analysts say the Bureau of Labor Statistics’ figures make it more likely the Federal Reserve will cut interest rates at its meeting next week.

Central banks, like the Fed, started upping borrowing costs in an attempt to slow prices rises, which picked up globally in 2021 because of a jump in pandemic-related government spending.

Russia’s invasion of Ukraine in 2022 then caused oil prices to surge, further fuelling global inflation.

US inflation hit a high of 9.1% in June 2021. It has since fallen closer to the 2% rate considered healthy.

The Federal Reserve, which raised interest rates aggressively starting in 2022, is now widely expected to lower borrowing costs for the first time in four years at its meeting this month.

Markets had been divided about how big a cut to expect.

But after the inflation report, many analysts said the Fed was likely to be more cautious, given the persistent price increases in some areas.

Stripping out food and energy prices – which tend to fluctuate and can obscure underlying trends – prices were up 3.2% over the year.

Over the month, prices rose 0.2%, the same as in July.

“This serves as a bit of a reminder not to get too carried away with a few months of better inflation data,” said Brian Coulton, Fitch Rating’s chief economist, noting higher prices for airline tickets, car insurance and other items.

“Certainly not enough to stop the Fed cutting rates later this month, but the stickiness of services inflation… will be one reason why the Fed will not be cutting rates at an aggressive pace over the next year or so.”

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