New inflation data has been released, and large Fed rate cuts now appear less likely.
Inflation in the United States fell to its lowest level in over three years last month, contributing to a string of positive economic indicators as the presidential race enters its final stretch. Consumer prices in September rose by just 2.4% compared to the same month last year, down from 2.5% in August, marking the smallest increase since February 2021. On a month-to-month basis, prices grew by 0.2%, consistent with the increase from August to September, according to the Labor Department's report on Thursday.
However, "core" inflation, which excludes the more unpredictable food and energy costs, remained elevated. Medical care, clothing, auto insurance, and airline fares all saw price increases, with core inflation rising 3.3% from a year ago and 0.3% from August. Core inflation is closely monitored by economists as it offers a clearer view of potential long-term inflation trends.
Alan Detmeister, an economist with UBS Investment Bank, suggested that while certain factors, such as used cars, may push core inflation higher in the coming months, other volatile categories like clothing and airfare may see price declines soon. "Prices are still gradually coming down, but volatility will persist month to month," Detmeister noted.
Overall, the September data indicates inflation is gradually returning to the Federal Reserve's 2% target, albeit with some fluctuations. This decline is likely to encourage the Fed to continue lowering its benchmark interest rate, with most economists predicting two quarter-point cuts in November and December.
On a brighter note, apartment rental prices increased at a slower pace, signaling that housing inflation may finally be cooling—an encouraging development for many consumers. Omair Sharif, founder of Inflation Insights, commented that the slowdown in new rent increases suggests the government's rent measures will continue to ease.
Gas prices contributed significantly to overall inflation relief, dropping 4.1% from August to September, while grocery prices rose by 0.4%. Although grocery prices are up 1.3% over the past year, they remain nearly 25% higher than pre-pandemic levels, which has affected many Americans' budgets. Restaurant food prices increased by 0.3% last month and are up 3.9% year-over-year, while clothing prices rose 1.1% from August and 1.8% from last year.
Bryan Tublin, co-founder of Kitava, a farm-to-table restaurant in San Francisco, described ongoing challenges with rising produce, meat, and oil prices. While some prices have started to stabilize, many suppliers continue to pass on higher costs due to shipping and labor expenses.
The improving inflation outlook follows strong job market news, with hiring accelerating in September and the unemployment rate dropping from 4.2% to 4.1%. The U.S. economy grew at an annual rate of 3% in the second quarter, with similar growth expected for the July-September period.
This combination of easing inflation, solid job growth, and strong economic performance could impact the presidential race, where Vice President Kamala Harris has gained ground in polls regarding who can better manage the economy. However, many voters remain concerned due to the cumulative rise in prices over the past three years.
Despite these concerns, economists are optimistic. Goldman Sachs recently projected that core inflation will fall to 3% by the end of 2024, barring any major global disruptions. Meanwhile, wages are now rising faster than inflation, offering some relief to households. Additionally, the Social Security Administration announced a 2.5% cost-of-living adjustment for nearly 73 million beneficiaries starting in January, reflecting the recent easing of inflation.
However, "core" inflation, which excludes the more unpredictable food and energy costs, remained elevated. Medical care, clothing, auto insurance, and airline fares all saw price increases, with core inflation rising 3.3% from a year ago and 0.3% from August. Core inflation is closely monitored by economists as it offers a clearer view of potential long-term inflation trends.
Alan Detmeister, an economist with UBS Investment Bank, suggested that while certain factors, such as used cars, may push core inflation higher in the coming months, other volatile categories like clothing and airfare may see price declines soon. "Prices are still gradually coming down, but volatility will persist month to month," Detmeister noted.
Overall, the September data indicates inflation is gradually returning to the Federal Reserve's 2% target, albeit with some fluctuations. This decline is likely to encourage the Fed to continue lowering its benchmark interest rate, with most economists predicting two quarter-point cuts in November and December.
On a brighter note, apartment rental prices increased at a slower pace, signaling that housing inflation may finally be cooling—an encouraging development for many consumers. Omair Sharif, founder of Inflation Insights, commented that the slowdown in new rent increases suggests the government's rent measures will continue to ease.
Gas prices contributed significantly to overall inflation relief, dropping 4.1% from August to September, while grocery prices rose by 0.4%. Although grocery prices are up 1.3% over the past year, they remain nearly 25% higher than pre-pandemic levels, which has affected many Americans' budgets. Restaurant food prices increased by 0.3% last month and are up 3.9% year-over-year, while clothing prices rose 1.1% from August and 1.8% from last year.
Bryan Tublin, co-founder of Kitava, a farm-to-table restaurant in San Francisco, described ongoing challenges with rising produce, meat, and oil prices. While some prices have started to stabilize, many suppliers continue to pass on higher costs due to shipping and labor expenses.
The improving inflation outlook follows strong job market news, with hiring accelerating in September and the unemployment rate dropping from 4.2% to 4.1%. The U.S. economy grew at an annual rate of 3% in the second quarter, with similar growth expected for the July-September period.
This combination of easing inflation, solid job growth, and strong economic performance could impact the presidential race, where Vice President Kamala Harris has gained ground in polls regarding who can better manage the economy. However, many voters remain concerned due to the cumulative rise in prices over the past three years.
Despite these concerns, economists are optimistic. Goldman Sachs recently projected that core inflation will fall to 3% by the end of 2024, barring any major global disruptions. Meanwhile, wages are now rising faster than inflation, offering some relief to households. Additionally, the Social Security Administration announced a 2.5% cost-of-living adjustment for nearly 73 million beneficiaries starting in January, reflecting the recent easing of inflation.