Business

Inflation slides in August, beating expectations

The consumer price index (CPI) increased 0.2 percent in August and slid to a 2.5 percent annual increase, after registering a 2.9 percent annual increase in July.

The drop came in below expectations as prices cooled further than anticipated.

Core CPI, which removes the more volatile categories of food and energy, stayed even between July and August at a 3.2 percent annual increase.

“Headline CPI was up just 2.5 percent year-on-year, which is the slowest in almost three and half years, and welcome news in the fight against inflation, especially for households,” Sonu Varghese, a strategist at the Nebraska-based Carson Group, said in a statement.

The stickiness in the core was troubling for a number of commentators Wednesday morning, who noted pricing pressure in housing, transportation and car insurance.


“This serves as a bit of a reminder not to get too carried away with a few months of better inflation data,” Brian Coulton, Fitch ratings chief economist, wrote in a statement.

Coulton said the core’s intransigence was likely not enough to cause the Fed to pause its expected interest rate cuts this month, but predicted a slower pace of rate cuts due to pressures in services inflation.

“The stickiness of services inflation at around 5 percent year-over-year will be one reason why the Fed will not be cutting rates at an aggressive pace over the next year or so,” he said.

Shelter and car insurance were also notable for Greg McBride, financial analyst with Bankrate.

“Despite the renewed consistency of improvement in inflation, the other consistency is that costs for shelter and motor vehicle insurance continue to rise at an outsized pace on both a monthly and annual basis,” he wrote. “Rents are up 5 percent over the past year, outpacing growth in average hourly earnings.”

Despite concerns about underlying inflation in the economy, Wednesday’s CPI report from the Labor Department was an encouraging one for consumers, with prices easing in key household expenses like food and energy.

Food prices advanced on the month by just 0.1 percent, for a 2.1 percent annual increase. Grocery prices were flat on the month, rising just 0.9 percent over the past year.

Energy prices are way down, having deflated by 4 percent since August 2023. Gasoline has slid 10.3 percent over the last year.

Roadside assistance provider AAA clocks an even larger drop in gas prices, registering a national average of $3.25 for a gallon of gas, down from $3.83 last year.

Updated at 9:29 a.m. EDT