U.S. Inflation Hits Three-Year Low in July, Boosting Prospects for Fed Rate Cut in September
As Inflation Slows to 2.9% in July, the Lowest in Over Three Years, Attention Shifts to the Federal Reserve’s Next Move, with Easing Housing Costs
In a significant development, year-over-year inflation in the United States reached its lowest level in more than three years this July, signaling that the country is finally emerging from the most severe price spike in four decades. The Federal Reserve may be prompted to consider an interest rate cut in September, following this encouraging trend.
The latest report from the Labor Department, released on Wednesday, reveals that consumer prices edged up by just 0.2% from June to July, continuing a downward trend that began with a slight drop the previous month — the first such decline in four years. Compared to the same period last year, prices increased by 2.9%, down from 3% in June, marking the mildest inflation rate since March 2021.
The report indicates that nearly all of July’s price increases were driven by higher rental prices and housing costs, sectors that are beginning to cool off according to real-time data. For several months now, cooling inflation has been providing gradual relief to American consumers, who had been hit hard by price surges over the past three years, especially for essentials like food, gas, and rent. Inflation had peaked at 9.1% two years ago, the highest level in 40 years.
The core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose 3.2% year-over-year in July, following a 3.3% increase in June, and met analysts' expectations. On a monthly basis, both the headline CPI and the core CPI climbed by 0.2%.
This continued moderation in inflation strengthens the case for the Federal Reserve to pause its interest rate hikes and possibly consider a cut in September, as the central bank looks to balance supporting economic growth with controlling inflation. The coming weeks will likely see heightened attention on Fed officials' statements as they assess the evolving economic landscape ahead of their next policy meeting.
