US Inflation eases slightly, but still higher than average: Report

Recent data from the Consumer Price Index (CPI), released on Thursday, showed that inflation in the US has slowed, but not as much as anticipated for September. Despite the slower-than-expected decline, inflation has notably eased over the past two years.

The report highlighted that overall inflation was recorded at 2.4 percent annually, down slightly from the previous 2.5 percent. However, this was still above the 2.3 percent forecast by economists. Additionally, the core inflation measure, which excludes more volatile categories such as food and fuel, edged up slightly to 3.3 percent.

The Broader Context: Inflation, as measured by the overall CPI index, has been declining from its peak of 9.1 percent in the summer of 2022. This trend, alongside a related metric known as the Personal Consumption Expenditures index (the Federal Reserve ’s preferred measure), has been moving closer to the central bank’s long-term target of 2 percent annual inflation.

Impact on the Federal Reserve and Interest Rates : The progress in reducing inflation has provided some relief to the Federal Reserve. In September, policymakers reduced interest rates for the first time in over four years, by a notable half percentage point. This move signals that the Fed is looking to make further reductions as inflation continues to cool. Projections from September indicated that the central bank anticipated at least two more quarter-point rate cuts by the end of the year.

Economic Performance: The recent figures suggest that the US economy, as well as the labour market, remain strong. The Federal Reserve is adjusting its policy to maintain this momentum. Despite earlier concerns, the resilience of the labour market has not deterred the Fed from its plan to gradually lower interest rates. John C. Williams , President of the Federal Reserve Bank of New York, mentioned in an interview that his goal is to preserve the current economic strength .

Political Implications: The cooling of inflation and the prospect of falling interest rates could provide a political boost for Democrats in the lead-up to the upcoming elections. Consumers, who have faced years of rising prices, may welcome the relief that lower inflation brings. However, some price categories, such as used cars and airfares, showed increases in September, even as housing costs began to stabilise, which is positive news for the Fed's goals.

A Word of Caution: Despite the overall positive trends, some categories continue to experience price hikes, and core inflation remains above the Federal Reserve's 2 percent target. Consequently, some officials have expressed caution regarding further rate cuts. They are wary of reducing borrowing costs too quickly, which could make it more difficult to control inflation in the long term. Michelle Bowman, a Federal Reserve governor, has voiced her concern, noting that the inflation target has not yet been fully achieved and advocating for a more measured approach to rate reductions.

As the US continues to navigate these economic shifts, both the Federal Reserve and consumers are likely to keep a close watch on inflation developments in the coming months.


With inputs from agencies