In August 2024, headline inflation in the United States slowed to 2.5% year-on-year (y/y), down 40 basis points from July’s 2.9%, according to the Bureau of Labor Statistics (BLS). This marks the lowest inflation print since February 2021, when the figure stood at 1.7%. The deceleration is largely attributed to a sharp contraction in energy prices, which fell by 4.0% y/y, compared to a 1.1% increase in July. Significant declines in gasoline and fuel oil prices were key drivers behind this energy sector dip.
Food prices also eased slightly, coming in at 2.1% y/y, down from 2.2% y/y in July. Specifically, prices for food away from home rose by 4.0% y/y, down from July’s 4.1%, while food at home prices increased by 0.9% y/y, compared to July’s 1.1%. The decline in food prices, especially for food at home, marks a three-month low.
On a month-on-month (m/m) basis, headline inflation remained stable, settling at 0.2% m/m for August, the same rate as July.
Analysts predict that consumer prices will continue to decelerate in the coming months due to several factors. Slower wage growth, the ongoing decline in energy prices, and improvements in supply chain efficiency are expected to support this trend. However, sticky services inflation, which has proven difficult to curb, is likely to keep consumer prices above the Federal Reserve’s 2.0% target in the near term.
With these factors in play, market expectations are shifting toward a possible interest rate cut by the Federal Open Market Committee (FOMC) at its next meeting on September 18. The CME FedWatch tool indicates a 57.0% chance of a 25 basis point cut, compared to a 43.0% chance of a more aggressive 50 basis point reduction.
The FOMC’s upcoming decision will be closely watched, as it seeks to balance inflation control with broader economic considerations.
