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The latest Consumer Price Index (CPI) data released Wednesday showed U.S. inflation cooling to 2.5% in August, marking the slowest pace of price growth since February 2021. This decline from July's 2.9% rate brings inflation closer to the Federal Reserve's 2% target, potentially paving the way for interest rate cuts.
Key factors contributing to the slowdown included falling gasoline prices, which dropped over 10% year-on-year, and decelerating food price growth, now at its lowest level since May 2021. The average cost of a gallon of gasoline currently stands at $3.25, down from $3.83 a year ago, according to AAA.
However, the "core" inflation rate, which excludes volatile food and energy prices, unexpectedly rose 0.3% month-on-month, primarily due to increasing housing costs. This persistent pressure in the housing sector remains a concern for policymakers and consumers alike.
Rob Wile, a business reporter, noted that since the start of the COVID-19 pandemic, rents have surged 25% nationwide. Zillow data shows the median monthly rent in the U.S. now hovering around $2,100, with significantly higher figures in major metropolitan areas.
The inflation trajectory has become a focal point in political discourse. During a recent presidential debate, Republican nominee Donald Trump criticized the Biden administration for overseeing a period of significant price growth, though he inaccurately described it as the worst in U.S. history.
Despite the overall positive trend, the lingering effects of rapid price increases over the past four years continue to impact consumers. Since early 2020, the CPI has climbed approximately 21%, with everyday items like milk and eggs seeing substantial price hikes.
Economists remain divided on the economic outlook. Torsten Slok, chief economist at Apollo Global Management, sees indicators of a "soft landing" with subdued unemployment and inflation. Conversely, Sophia Kearney-Lederman, senior economist at FHN Financial, warns that persistent weakness in jobs data could signal a "hard landing" scenario.
The Federal Reserve is widely expected to implement a 0.25% cut in its key interest rate, currently around 5.3%, later this month. However, some experts argue that this modest reduction may not suffice to stave off economic challenges.
