The latest Consumer Price Index (CPI) showed more progress on headline inflation, as consumer prices rose 2.5% for the 12 months ending in August. This marked a slowing from July’s 2.9% annual gain and the lowest reading since February 2021.
The Core measure, which strips out volatile food and energy prices, increased 0.3% from July, coming in just above estimates. The annual reading held steady at 3.2%.
Shelter and motor vehicle insurance costs were key reasons for the pricing pressure that was seen last month, as together they made up 89% of the inflation in August. Many other major items (such as energy and new/used cars) actually saw prices flat to down in August. This suggests that most of inflation has been quelled except for a few key areas that are keeping it artificially high.
What’s the bottom line? Cooling consumer inflation and rising unemployment have caused the Fed to acknowledge that they need to begin cutting their benchmark Fed Funds Rate, which is the overnight borrowing rate for banks. With the Fed’s next meeting and Monetary Policy decision coming this Wednesday, September 18, the only question that remains is will members vote for a 25 or 50-basis point cut?
