US Inflation Reaches Lowest Point in 3 Years, Though Some Price Pressures Remain
Inflation in the United States dropped last month to its lowest point since the surge began over three years ago.
Consumer prices rose by just 2.4% in September compared to a year earlier, down from 2.5% in August, representing the smallest annual increase since February 2021. Month to month, prices increased 0.2% from August to September, which remains consistent with the previous month’s rise, according to the Labor Department’s report.
When excluding the more volatile food and energy sectors, “core” prices—a key measure of underlying inflation—remained elevated in September. This was primarily due to increases in costs for medical care, clothing, auto insurance, and airline fares. The core prices saw an annual increase of 3.3% and a monthly rise of 0.3% from August.
Economists pay close attention to core prices as they typically offer a better indication of future inflation trends.
Alan Detmeister, an economist, noted that some items contributing to higher core inflation, particularly used cars, could see price increases in the forthcoming months, keeping the overall prices somewhat elevated. Items such as clothing and airfares, which are more volatile, are expected to cool down soon.
“Things are still gradually coming down, but there is going to be volatility month to month,” said Detmeister.
The September figures indicate that inflation is consistently trending back toward the Federal Reserve’s target of 2%, albeit in an uneven manner. This reduction hints at the likelihood that the Federal Reserve will continue to cut its benchmark interest rate this year, with most economists anticipating quarter-point reductions in November and December.
Notably, rent prices for apartments grew at a slower rate last month, suggesting that housing inflation is finally beginning to moderate, providing long-awaited relief for many consumers. Omair Sharif, founder of Inflation Insights, suggested that new rent measures indicate a steady slowdown, implying that the government’s rent gauges should continue to reflect easing trends over time.
“I think we’re on the right path here,” Sharif stated. “We should see rent cool off quite a bit.”
Overall inflation last month was moderated by a significant drop in gas prices, which fell by 4.1% from August to September. Grocery prices, on the other hand, saw a slight rise of 0.4% last month, resulting in a year-over-year increase of just 1.3%. However, food prices overall remain nearly 25% higher than pre-pandemic levels, which have strained many American households’ budgets and become a prominent topic in the presidential campaign.
Former President Donald Trump often highlights rising food costs, mentioning bacon prices, which soared by 30% to a peak of $7.60 per pound in October 2022. Although prices have since decreased to $6.95, they remain elevated.
Restaurant food prices increased by 0.3% last month and have risen by 3.9% over the past year. Clothing prices also rose, incrementing by 1.1% from August to September and posting an annual increase of 1.8%.
The improving inflation outlook follows a broadly favorable jobs report released last week, which indicated that hiring picked up in September and the unemployment rate decreased from 4.2% to 4.1%. Additionally, the economy expanded at a solid annual rate of 3% in the April-June quarter, with growth likely maintaining a similar pace in the recently concluded July-September quarter.
The combination of cooling inflation, solid job growth, and healthy economic expansion could reduce Trump’s perceived advantage concerning economic issues in the upcoming presidential campaign. Polls suggest Vice President Kamala Harris has caught up with Trump regarding public opinion on economic management.
Nevertheless, many voters still rate the economy poorly due to the cumulative price increases over the past three years.
Following last week’s stronger-than-expected jobs report, concerns arose among Federal Reserve officials that the economy may not be cooling sufficiently to slow inflation adequately. The central bank had reduced its key rate by a half-point, marking its first significant cut in four years. Fed policymakers have indicated they anticipate two additional quarter-point rate cuts in the coming months.
In recent remarks, numerous Fed officials emphasized the need to proceed with caution regarding rate cuts, suggesting that further half-point reductions may not be on the agenda. Lorie Logan, president of the Federal Reserve’s Dallas branch, mentioned that the Fed “should not rush to reduce” the benchmark rate but rather do so gradually.
Inflation in the U.S. and across many countries in Europe and Latin America surged amid the economic recovery from the pandemic, as COVID-19 impacted supply chains and production. Furthermore, Russia’s invasion of Ukraine exacerbated energy and food shortages, driving inflation higher, which peaked at 9.1% in the U.S. back in June 2022.
Economists project that core inflation will decrease to 3% by December 2024, and most analysts do not foresee another surge in inflation unless geopolitical tensions in the Middle East worsen dramatically.
