U.S. inflation likely reached its lowest point since February 2021 last month, potentially clearing the way for another Federal Reserve rate cut.
The consumer price index is expected to have risen 2.3% in September compared to 12 months earlier, according to economists surveyed by FactSet. This marks a drop from August’s 2.5% increase.
The small increase is expected to reflect lower gas prices and a modest rise in food costs, keeping it close to the Fed’s 2% inflation target. Over two years ago, inflation had surged to a peak of 9.1%.
Eduardo Munoz Alvarez/AP Photo
Month over month, consumer prices are estimated to have risen just 0.1% from August to September, a slight decrease from the 0.2% rise in the previous month.
The inflation data follows a mostly healthy jobs report from last week, which showed that hiring had accelerated in September, and the unemployment rate dropped to 4.1% from 4.2%. Additionally, the economy expanded at a 3% annual rate in the April-June quarter, with similar growth likely continuing into the third quarter.
Cooling inflation, steady hiring, and solid growth could affect the presidential campaign by eroding former President Donald Trump‘s advantage on the economy in polls.
Recent surveys show Vice President Kamala Harris pulling even with Trump on economic issues, although most voters continue to view the economy negatively, largely due to price increases over the past three years.
Yuki Iwamura/AP Photo
Last month, the Fed reduced its key rate by half a point, the first such cut in four years. Policymakers also signaled plans for two additional quarter-point cuts in November and December. Fed officials have recently indicated they remain open to more rate cuts but at a slower pace.
Lorie Logan, president of the Federal Reserve’s Dallas branch, remarked that the Fed “should not rush to reduce” its rate, but should move gradually.
Inflation surged globally following the pandemic, as factory shutdowns and supply chain issues, coupled with Russia’s invasion of Ukraine, strained energy and food supplies. U.S. inflation peaked at 9.1% in June 2022. Excluding food and energy, core prices likely rose 0.3% from August to September and are expected to be 3.2% above their level a year ago. Though this is still above the Fed’s 2% target, economists expect core inflation to slow as rent and housing prices cool.
Goldman Sachs economists predict core inflation will fall to 3% by December 2024, barring major escalations in global conflicts. Despite ongoing inflation concerns, wage and income growth now outpaces rising costs, helping households adjust. The Census Bureau reported a 4% rise in inflation-adjusted median household incomes in 2023, restoring them to pre-pandemic levels.
As higher prices strain budgets, consumers have shifted to private-label products and discount stores, putting pressure on companies to slow price increases. PepsiCo, for example, recently reported a decline in sales volume after raising prices on drinks and snacks. “The consumer is reassessing patterns,” said Ramon Laguarta, CEO of PepsiCo, on Tuesday.
This article includes reporting from The Associated Press
