U.S. inflation hit its lowest level since February 2021 last month, paving the way for further Fed interest rate cuts and adding to a flurry of encouraging economic data in the final weeks of the presidential campaign. spurred on.
The consumer price index rose 2.4% in September from 12 months ago, slightly ahead of expectations for a 2.3% rise, but compared with August’s 2.5% increase, according to a survey of economists by data provider FactSet. % increase. This low number likely reflects lower gas prices and a slight increase in food prices, and is just barely above the Fed’s 2% inflation target. A little over two years ago, inflation peaked at 9.1%.
The improving inflation data follows a mostly healthy jobs report released last week, which showed hiring accelerated in September and the unemployment rate fell from 4.2% to 4.1%. The government also reported that the economy expanded at a solid 3% annual rate in the April-June period. And it is highly likely that growth continued at roughly the same pace in the just-completed July-September period.
Lower inflation, stable employment and strong growth, as measured by opinion polls, could undermine former President Donald Trump’s economic advantage in the presidential race. In some polls, Vice President Kamala Harris is tied with President Trump on the question of who will best handle the economy, after Trump took a firm lead over President Joe Biden on the issue.
“The good news is that trends remain broadly disinflationary, but the bad news is that services inflation remains an issue,” Olu Sonora, head of U.S. economic research at Fitch Ratings, said in a note. ” he said. “Inflation is dying, but it’s not dead.”
New study finds job security remains a major concern for Americans 04:34
At the same time, most voters still rate the economy relatively poorly, citing cumulative price increases over the past three years.
For the Fed, the much better-than-expected jobs report released last week heightened some concerns that the economy was not cooling enough to slow inflation. Last month, the central bank slashed its key policy interest rate by 0.5 percentage points, the largest rate cut in four years. Fed policymakers also signaled they expect two more quarter-point rate cuts in November and December.
Fed preparing for further rate cuts
Many Fed officials have indicated in their comments this week that they still intend to continue lowering key interest rates, but there are indications that another half-point cut is unlikely at the intended pace.
Laurie Logan, president of the Federal Reserve’s Dallas branch, said in a speech Wednesday that the Fed “should not rush to lower its benchmark interest rate, but rather do so gradually.”
Inflation has soared in the United States, Europe and many countries in Latin America amid economic recovery from the pandemic as the coronavirus shuts down factories and chokes supply chains. Russia’s invasion of Ukraine worsened energy and food shortages and increased inflation. In the US, it peaked at 9.1% in June 2022.
So-called core prices, which exclude volatile food and energy costs, are likely to rise 0.3% from August to September, possibly 3.2% above a year-ago level, according to FactSet. While such a number would be faster than matching the Fed’s 2% target, economists expect core inflation to cool slightly by year-end as rental and home price growth slows.
For example, Goldman Sachs economists predict that core inflation will fall to 3% by December 2024. Few analysts expect inflation to rise again unless conflicts in the Middle East worsen dramatically.
wages are restored
Rising prices have made the economy worse for many Americans, but wages and incomes are now rising faster than costs, which should make it easier for households to adapt. Last month, the Census Bureau estimated that inflation-adjusted median household income (the level at which half of households are above and half are below) will rise 4% in 2023, enough to return incomes to pre-pandemic peaks. Reported.
Rising food prices are causing many consumers to shift their spending from name brands to private labels or to shop more at discount stores. These changes are putting more pressure on processed food companies to slow price increases, for example.
PepsiCo this week reported a drop in sales after imposing steep price increases on drinks and snacks.
“Consumers are reevaluating their patterns,” PepsiCo CEO Ramon Laguarta said Tuesday.
