In August, the Labor Department reported that inflation in the US dropped to its lowest level since February 2021. The Consumer Price Index (CPI), a gauge of goods and services prices across the US economy, rose by 0.2% for the month, aligning with the Dow Jones consensus, as stated by the Bureau of Labor Statistics.
The 12-month inflation rate fell to 2.5%, a decrease of 0.4 percentage points from July, slightly under the projected 2.6% and marking the lowest point in 3.5 years. On the other hand, the core CPI, which excludes volatile food and energy costs, saw a 0.3% increase for the month, slightly surpassing the 0.2% estimate. The 12-month core inflation rate remained steady at 3.2%, consistent with forecasts.
This marginal rise in core CPI places the Federal Reserve in a defensive position against inflation, possibly diminishing the likelihood of a more aggressive interest rate hike during the upcoming policy meeting next Tuesday and Wednesday.
In the fed funds futures market, there is an 85% probability that the Federal Open Market Committee will endorse a quarter percentage point (25 basis point) interest rate reduction when the meeting concludes on September 18, based on the CME Group’s FedWatch measure. Just a month earlier, markets were leaning more towards a 50 basis point reduction.
