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US Inflation Likely Fell Further in Aug09/11 06:01
Inflation in the United States may have hit a three-year low in August,
underscoring that the rate of price increases is falling back to pre-pandemic
levels and clearing the way for the Federal Reserve to start cutting its key
interest rate next week.
WASHINGTON (AP) -- Inflation in the United States may have hit a three-year
low in August, underscoring that the rate of price increases is falling back to
pre-pandemic levels and clearing the way for the Federal Reserve to start
cutting its key interest rate next week.
Year-over-year inflation is thought to have slowed to 2.6% last month,
according to a survey of economists by the data provider FactSet. That would be
the lowest such rate since March 2021. And excluding volatile food and energy
prices, core inflation is believed to have remained unchanged at 3.2%.
Inflation peaked at 9.1% in June 2022 -- a four-decade high -- as the
economy rebounded from the pandemic recession with unexpected speed and
strength. The Fed responded with 11 rate hikes in 2022 and 2023, raising its
key rate to a 23-year high and making loans much more expensive across the
economy.
The latest inflation figures could inject themselves into the presidential
race in its final weeks. Former President Donald Trump has heaped blame on Vice
President Kamala Harris for the jump in inflation, which erupted in early 2021
as global supply chains seized up, causing severe shortages of parts and labor.
Harris has proposed subsidies for home buyers and builders in an effort to ease
housing costs and supports a federal ban on price-gouging for groceries. Trump
has said he would boost energy production to try to reduce overall inflation.
Fed officials have signaled that they're increasingly confident that
inflation is steadily falling back to their 2% target and are now shifting
their focus to supporting the job market, which is rapidly cooling. The Fed's
mandate is to seek stable prices and maximum employment.
Reductions in the Fed's benchmark rate should, over time, reduce the cost of
consumer and business borrowing, including for mortgages, auto loans and credit
cards.
"Overall, I see significant and ongoing progress toward the (Fed's)
inflation goal that I expect will continue over the remainder of this year,"
Christopher Waller, a key policymaker on the Fed's Board of Governors, said
last week.
Waller noted that for more than half the goods and services that the
government tracks, annual inflation has fallen below 2.5%, a sign that price
increases are broadly slowing.
A big reason why inflation likely fell last month is that gas prices tumbled
by about 10 cents a gallon in August, according to the Energy Inflation
Administration, to a national average of about $3.29.
Economists also expect the government's measures of grocery prices and rents
to rise more slowly. Though food prices are roughly 20% more expensive than
before the pandemic, they are up just 1.1% from a year ago.
Another potential driver of slower inflation is that the cost of new
apartment leases has started to cool as a stream of newly built apartments have
been completed.
According to the real estate brokerage Redfin, the median rent for a new
lease rose just 0.9% in August from a year earlier, to $1,645 a month. But the
government's measure includes all rents, including those for people who have
been in their apartments for months or years. It takes time for the slowdown in
new rents to show up in the government's data. In July, rental costs rose 5.1%
from a year ago, according to the government's consumer price index.
Americans' paychecks are also growing more slowly -- an average of about
3.5% annually, still a solid pace -- which reduces inflationary pressures. Two
years ago, wage growth was topping 5%, a level that can force businesses to
sharply raise prices to cover their higher labor costs.
In a high-profile speech last month, Fed Chair Jerome Powell noted that
inflation was coming under control and suggested that the job market was
unlikely to be a source of inflationary pressure.
As a result, the Fed is poised to begin cutting its key rate when it meets
next week in hopes of bolstering growth and hiring. Consumers have propelled
the economy for the past three years. But they are increasingly turning to debt
to maintain their spending and credit card, and auto delinquencies are rising,
raising concerns that they may have to rein in their spending soon. Reduced
consumer spending could lead more employers to freeze their hiring or even cut
jobs.
"We do not seek or welcome further cooling in labor market conditions,"
Powell said.
The Fed is widely expected to cut its benchmark rate by a modest
quarter-point next week, though it's possible that its policymakers could
instead decide that a half-point reduction is needed. Wall Street traders
envision a half-point rate cut at the Fed's subsequent meeting in November,
according to futures prices.
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