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In welcome news to Fed watchers everywhere, the Consumer Price Index (CPI), a key measure of inflation, dropped below 3% this month for the first time since 2021. The index, which tracks how much American consumers pay for goods, showed prices had increased by just 2.9% year over year since last July.
The “core” CPI, or the CPI minus the more volatile factors of food and energy, rose 3.2% over the last 12 months, the smallest 12-month increase since April 2021.
The CPI is one of the measures the Fed looks at when determining interest rates. The latest news “really ticks the box for a September rate cut,” Gennadiy Goldberg, head of US rates strategy at TD Securities, told the New York Times.
Another important gauge, the Producer Price Index (PPI), released Tuesday, also shows that inflation has moderated. The PPI, which measures prices that producers of goods and services charge, was up 0.1% from last month and 2.2% over the last 12 months, the smallest YoY increase since March 2024.
Sticky shelter: Inflation in housing and rents remains elevated, though. The CPI’s “shelter” subindex was up 0.4% in July and 5.1% year over year. Shelter was responsible for more than 70% of the 12-month growth in the core CPI, CNBC pointed out. Without shelter costs, the CPI would stand at 1.7%, below the Fed’s 2% inflation target.
Ups and downs: It’s not just your imagination: Certain items have gotten considerably more expensive over the past 12 months. Motor vehicle insurance prices have risen 18.6%, due to increases in car accidents and the cost of repairs. The price of eggs was up 19.1%—thank bird flu for that one.
But in other areas, consumers are seeing some relief: Gas prices were down 2.2% year over year and grocery prices rose by just 1.1%, slower than the overall rate of inflation.