WASHINGTON — Recent trends indicate that inflation in the United States has reached its lowest level in over three years, coinciding with a surge of positive economic developments as the presidential race heats up.
According to Labor Department data, consumer prices increased by just 2.4% in September compared to the previous year, a slight decrease from August’s 2.5%. This marks the smallest annual rise since February 2021. Monthly price changes showed a consistent increase of 0.2% from August to September.
However, when excluding food and energy prices, the core inflation rate remains a crucial focus for economists. Core prices rose 3.3% on a year-over-year basis and 0.3% from August, influenced by higher costs in medical care, clothing, and airline fares. Analysts emphasize that core prices are a better predictor of future inflation trends.
One prominent economist noted that certain items contributing to core inflation, such as used vehicles, may see price increases in the near future, although more volatile categories like clothing and airfares are expected to stabilize.
The overall inflation data for September demonstrates a gradual movement back towards the Federal Reserve’s 2% target, suggesting potential adjustments to interest rates in the coming months. Economists anticipate two quarter-point rate cuts in November and December.
In a positive development, apartment rental prices showed signs of slowing growth, indicating a long-awaited easing in housing inflation, which could benefit consumers significantly.
The previous month’s inflation figures were bolstered by a notable decrease in gas prices, which fell by 4.1%. Meanwhile, grocery prices experienced a modest rise of 0.4% last month, remaining only 1.3% higher than a year ago.
Despite recent increases, food prices are still roughly 25% higher than pre-pandemic levels, impacting household budgets and becoming a key issue in the presidential campaign. Restaurant food prices climbed 0.3% last month, with an annual increase of 3.9%, while clothing prices rose 1.1% month-over-month and 1.8% year-over-year.
The recent advancements in inflation data align with a promising jobs report that indicated accelerated hiring in September and a decrease in the unemployment rate from 4.2% to 4.1%. Economic growth is projected to remain robust, building on a 3% annual growth rate observed in the previous quarter.
As inflation cools and employment rates strengthen, the political landscape may shift, potentially diminishing former President Donald Trump’s perceived edge in handling economic issues as polling indicates Vice President Kamala Harris gaining ground.
Despite these positive indicators, many voters continue to rate the economy poorly due to past inflationary pressures. The Federal Reserve has expressed concerns about the sustainability of economic cooling, following a significant drop in its benchmark interest rate last month after four years.
Fed officials are advocating a cautious approach to further rate cuts, emphasizing a gradual reduction strategy instead of accelerated actions.
The rise in inflation globally, including in the U.S., followed the pandemic’s recovery period, which reduced factory output and hindered supply chains. Factors, including geopolitical tensions, have exacerbated inflationary trends, peaking at 9.1% in June 2022.
Looking ahead, forecasts suggest that core inflation may decline to 3% by December 2024, with analysts generally expecting no major resurgence in inflation unless significant global conflicts escalate.
Although higher prices have led to negative perceptions regarding the economy, an increase in wages is beginning to alleviate some financial pressures, as recent reports indicate a 4% rise in inflation-adjusted median household incomes in 2023, returning to pre-pandemic norms.
In response to rising food costs, consumers are increasingly opting for private labels and discount stores. This shift is compelling packaged food companies to reconsider pricing strategies.
This week, sales volumes at notable consumer goods companies declined following steep price hikes.
