FILE-People walk through the produce department at the at a Wegmans grocery store on October 28, 2023, in New York City. (Photo by Gary Hershorn/Getty Images)
null - Inflation in the U.S. fell to a 3-year low, paving the way for the Federal Reserve to cut interest rates.
In a Labor Department report released on Wednesday, consumer prices grew 2.5% in August from a year earlier, down from 2.9%. This marked the fifth consecutive annual decline and the lowest since February 2021. Prices increased 0.2% from July to August.
Core prices climbed 3.2% in August compared to 2023. The report noted that core prices jumped 0.3%, a slight change from a 0.2% increase in July. Core prices is a price index that measures inflation without including the prices of food and energy.
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What causes inflation?
There are three factors that could lead to inflation which include demand-pull inflation, cost-push inflation and built-in inflation.
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Meanwhile, average gas prices dipped 0.6% from July to August and are down 10.6% from a year ago. And used car prices fell 1% in August.
The report noted that grocery prices didn’t change from July to August, extending a decline in food costs even though they remain much higher than they were in 2021. In the last year, grocery prices rose up just 0.9%, comparable to the rate of pre-pandemic food inflation.
The rise in core inflation from July to August reflected a rise in housing costs and some increases in the prices of flights and hotel rooms. Airline fares rose 3.9% from July to August after declining the past five months. Hotel room prices soared 1.8% in August; they had fallen in two of the past three months.
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According to the Associated Press, the Federal Reserve believes inflation will return to the agency’s 2% target and their focus is on the job market. The Fed is set to cut their interest rate next week from its 23-year-high in hopes of improving growth and hiring.
Workers' paychecks are growing slowly at an average of 3.5% yearly. In 2022, wage growth rose 5%, a rate that could result in companies raise prices to cover their higher labor costs.
But the growth in core inflation suggests that it is unlikely that the Federal Reserve will consider slashing its key interest rate by a half-point next week.
Some trends suggest that inflation will keep slowing, like a decline in oil prices to $67 a barrel on Wednesday, which is down from a high of $80 in August.