Annual inflation stands at 2.9%, the lowest in over three years

In July, the annual Consumer Price Index (CPI) in the US fell to the 2% range for the first time in three years and four months. With concerns about a potential economic slowdown growing, the Federal Reserve is widely expected to cut interest rates next month. According to the US Bureau of Labor Statistics, the CPI in July increased by 2.9% compared to the same month last year, marking a decrease of 0.1 percentage points from June's 3.0% rise. This was also below the Dow Jones' expert forecast of 3.0%. The month-over-month change, which reflects short-term price fluctuations, was 0.2%, aligning with expert predictions. Excluding the volatile categories of energy and food, the core CPI rose 3.2% year-over-year and 0.2% from the previous month.

The annual overall CPI inflation rate is at its lowest level since March 2021, while the core CPI rate is at its lowest since April 2021. After peaking at 9.1% in June 2022, the CPI inflation rate has been declining and has remained in the 3% range since June of last year. Although CPI readings for January to March of this year were higher than expected, raising concerns that the Federal Reserve might struggle to meet its inflation target of 2%, the rate of increase has slowed since April. For this year, the annual CPI increases are as follows: 3.1% in January, 3.2% in February, 3.5% in March, 3.4% in April, 3.3% in May, and 3.0% in June. With the CPI rising less than anticipated, the likelihood of a Federal Reserve rate cut at the Federal Open Market Committee (FOMC) meeting on September 17-18 has increased. Federal Reserve Chair Jerome Powell hinted strongly at a possible rate cut next month. The Wall Street Journal has described this possibility as "likely." Since raising the rate by 0.25 percentage points from 5.25% to 5.5% in July of last year, the Fed has maintained this level for over a year.

In the July employment report, the unemployment rate hit 4.3%, the highest in nearly three years and 0.6 percentage points above the 3.7% rate at the start of the year. This has sparked discussions about a potential recession and led to a sharp decline in the stock market, prompting financial markets to quickly adjust their expectations for Fed policy. Powell has indicated that the Fed will now consider both full employment and price stability together. The main focus now is on how much the Fed will lower rates in September. Some market participants are speculating about a possible 0.5 percentage point cut, rather than the usual 0.25 percentage points. Richmond Federal Reserve Bank President Thomas Barkin mentioned on August 8 that "disinflation is likely to continue" and highlighted the decision between "gradually adjusting rates" or taking more decisive action.

(The Koeran Daily 2024.08.15)