Inflation cooled in August, the latest sign of progress in the Federal Reserve’s yearslong fight to bring rapid price increases back under control.
The Personal Consumption Expenditures index climbed by 2.2 percent from a year earlier, data released Friday showed. That is down from 2.5 percent in July and slightly softer than economist forecasts. It was the slowest annual inflation reading since early 2021.
After stripping out volatile food and fuel prices for a better sense of the underlying inflation trend, a “core” price index was a bit more stubborn on an annual basis. The core measure came in at 2.7 percent, up from 2.6 percent previously and in line with what economists had expected. But comparing prices from month to month, core inflation slowed to a modest 0.1 percent in August.
Altogether, the report offers further proof that price increases are swiftly fading. Already, that has allowed the Fed to begin to lower interest rates from a more than two-decade high of 5.3 percent. After raising borrowing costs sharply and then holding them at a high level to slow the economy and weigh down inflation, officials voted last week to cut rates by a larger-than-usual half percentage point. Policymakers also signaled that more rate cuts are coming, as long as inflation continues to fade.
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SKIP ADVERTISEMENTThe Fed’s pivot is already helping to bring down mortgage rates, and it could slowly trickle through the economy to stop the job market from slowing more markedly. Central bankers are trying to pull off a rare “soft landing,” in which they cool conditions enough to wrangle price increases without tempering them so much that unemployment spikes and the economy falls into a recession.
There were some signs that the economy may be pulling back — but not crashing — in the details of Friday’s report. Consumer spending, which makes up a big part of overall economic activity, grew more slowly in August, the data showed. And personal incomes picked up less than expected.
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