The Federal Reserve has been hinting at an interest rate cut for months now, with many economists believing such a cut might come in September.
Perhaps we’re about to find out if they’re right.
Year-over-year inflation reached its lowest level in more than three years in July, the latest sign that the worst price spike in four decades is fading and setting up the Federal Reserve for an interest rate cut in September, the Associated Press reported.
The Labor Department reported Wednesday that consumer prices rose just 0.2% from June to July after dropping slightly the previous month. Measured from a year earlier, prices rose 2.9%, down from 3% in June. It was the mildest gain since March 2021.
The government said nearly all of July’s inflation reflected higher rental prices and other housing costs, a trend that, according to real-time data, is easing, the AP reported. As a result, housing costs should rise more slowly in the coming months, contributing to lower inflation.
The report showed inflation is steadily falling closer to the Fed’s 2% target — though not too quickly, which might suggest that the economy is weakening, according to Tara Sinclair, an economist at George Washington University and a former Treasury Department official.
“It’s a comforting report, both because it is going in the right direction and because it is not doing anything too dramatic,” Sinclair told the AP. “It is exactly what we wanted to see.”
In July, grocery prices rose just 0.1% and are a scant 1.1% higher than they were a year earlier, a much slower pace of growth than in previous years. Yet many Americans are still struggling with food prices, which remain 21% above where they were three years ago.
Gas prices were unchanged from June to July and have actually fallen 2.2% in the past year. Clothing prices also dropped last month; they’re nearly unchanged from 12 months earlier. New and used car prices fell in July, too. Used car prices, which had skyrocketed during the pandemic, have tumbled nearly 11% in the past year.
Some food prices, including for meat, fish and eggs, are still increasing faster than before the pandemic. Dairy and fruit and vegetable prices, though, fell in July, according to the AP report.
