U.S. inflation slowed in July, with consumer prices rising moderately and the annual inflation rate dipping below 3% for the first time in nearly three and a half years. According to a report released by the Labor Department on August 14, 2024, the Consumer Price Index (CPI) increased by 0.2% last month, matching economists’ expectations and continuing a trend of mild inflation readings. The CPI’s year-on-year rise of 2.9% is the smallest gain since 2021.
This data supports the view that inflation in the U.S. is on a downward trajectory, potentially paving the way for the Federal Reserve to cut interest rates in September. The moderation in inflation comes as consumers increasingly push back against high prices by seeking bargains, cutting back on purchases, and opting for lower-priced alternatives.
However, rising rents and persistent inflation above the Federal Reserve’s 2% target suggest that the central bank may not opt for a larger rate cut, despite speculation about a potential 50-basis-point reduction. The recent increase in the unemployment rate to 4.3%, a nearly three-year high, does leave the door open for a significant rate cut, but economists remain cautious.
“The continued progress towards the Fed’s inflation goals is evident,” said Scott Anderson, chief economist at BMO Capital Markets. “While this report won’t prevent the Fed from cutting rates in September, the likelihood of a larger cut still seems remote.”
Shelter costs, particularly rents, were a major driver of the CPI’s rise in July, contributing nearly 90% of the overall increase. Food prices also saw a modest 0.2% gain, similar to June’s increase. These rising costs are expected to remain a concern for voters as the U.S. presidential election approaches on November 5, 2024.
