The latest data from the U.S. Consumer Price Index (CPI) indicates a deceleration in year-on-year total CPI to 2.9%, marking the lowest rate since March 2021. While this shows a welcome slowing in inflation rates, they still remain above the Federal Reserve's 2% target.
The July CPI report, released on August 14, revealed a decrease in both total CPI and Core CPI inflation rates. Total CPI slowed to 2.9% in July from 3.0% in June, while Core CPI decelerated to 3.2% from 3.3%.
Despite these easing inflation rates, they are still considered elevated, posing risks of 'slowflation' where growth slows while inflation remains high. The upcoming growth data will be crucial in assessing the health of the U.S. economy and determining the potential for a recession.
Looking ahead, the rise in crude oil prices due to geopolitical tensions in the Middle East presents additional upside risks to month-on-month CPI rates in August. This, coupled with the elevated year-on-year Core CPI at 3.2%, indicates a mixed outlook for inflation.
While inflation has been gradually easing, it has not yet reached the Fed's 2% target. The possibility of a 0.50% interest rate cut by the Federal Reserve Open Market Committee in September remains uncertain, with base effects likely to keep inflation rates above target until the first half of 2025.
Market analysts and economists are closely monitoring Federal Reserve Chair's remarks at the upcoming Jackson Hole event from August 22 to August 24 for insights into potential interest rate cuts. The Fed's decision on rate cuts will depend on the progress of inflation towards the 2% target.
As the economic landscape evolves, investors and stakeholders are eagerly awaiting further clarity on the Fed's monetary policy direction. Stay tuned for updates on this developing story.
