US Inflation Falls To Lowest Level In Over Three Years

Inflation in the United States has fallen to its lowest point since early 2021, providing a boost to the economy as the presidential race heats up. 

In September, consumer prices rose just 2.4 per cent from a year earlier, a slight dip from August’s 2.5 per cent increase, according to the Labor Department. This marks the smallest annual rise in prices since February 2021. Month-to-month inflation remained stable, with prices increasing by 0.2 per cent in both August and September.

However, core inflation—which excludes volatile food and energy prices—remains a concern. Core prices rose 3.3 per cent over the past year, driven by higher costs for medical care and car insurance. Economists closely watch core inflation as it tends to offer a clearer picture of underlying trends. Despite the elevated core inflation, overall price moderation signals an improving economic outlook.

The inflation decline comes on the heels of positive jobs data, with hiring accelerating in September and the unemployment rate falling to 4.1 per cent. The US economy also expanded at a solid 3 per cent annual rate in the April-June quarter, with continued growth likely in the following months. This strong economic performance could reshape the political landscape as voters weigh their options ahead of the election. Recent polls show Vice President Kamala Harris closing in on Donald Trump’s lead on economic issues, though many voters remain concerned about the cumulative effect of price increases over the past three years.

Meanwhile, the Federal Reserve has responded cautiously to the economic data. After cutting its key interest rate by half a percentage point last month—its first reduction in four years—Fed officials signaled a more gradual approach going forward. While they indicated further rate cuts may come in November and December, Fed leaders, such as Dallas Fed President Lorie Logan, have emphasized the need for a measured pace.

Inflation initially surged after the pandemic disrupted global supply chains, and the Russia-Ukraine war exacerbated food and energy shortages. After peaking at 9.1 per cent in June 2022, inflation has steadily eased. Economists at Goldman Sachs project that core inflation could drop to 3 per cent by the end of 2024, barring any major escalation in global conflicts.

Despite lingering concerns over inflation, wages are now rising faster than prices, helping households cope with higher costs. A recent Census Bureau report showed that inflation-adjusted median household incomes rose by 4 per cent in 2023, bringing incomes back to pre-pandemic levels. However, consumers are still adjusting their spending habits, with many opting for store-brand products or turning to discount retailers in response to ongoing price increases, particularly in food. Companies like PepsiCo have already felt the impact, reporting lower sales volumes after imposing steep price hikes on their products.

(Inputs from AP)