The rate of annual consumer inflation in the United States has been decreasing considerably over the past few years, reaching one its lowest points since the post-pandemic spike last month, with a possibility of shaping future debates about the economy as the presidential election nears.
According to a report from the Labor Department published on Wednesday, consumer prices rose 2.5% in August from a year earlier, down from 2.9% in July. Prices rose just 0.2% from July to August. This decline represented the fifth straight annual drop and the smallest recorded since February 2021.
The drops in inflation in recent months have eased prices for American consumers on essentials such as food, gas, rent, which experienced significant price surges three years ago as prices and interest rates rose after Covid. Inflation peaked mid-2022 at 9.1%, the highest rate in four decades.
Now, the decline will likely clear the way for the Federal Reserve to cut interest rates, further alleviating costs and economic pressure for consumers.
Aside from volatile food and energy costs, so-called core prices rose 3.2% in August from a year ago, the same numbers recorded in July. Core prices have risen 0.3% on a month-to-month basis, which is a slight pickup from July’s 0.2% increase. Economists closely observe core prices, as they typically provide a better read of future inflation trajectories.
“Today’s report will add to confidence within the Fed that inflation is indeed on a sustainable path towards 2%,” the Fed’s target level, Carl Weinberg, chief economist at High Frequency Economics, wrote in a note to clients.
Along with the changes in costs, American’s wages and income levels have also increased consistently in the past few years. Overall incomes have even surpassed inflation over the past 18 months, assisting households with elevated prices.
On Tuesday, the Census Bureau disclosed that the median inflation-adjusted household income rose 4% last year to above $80,000, essentially matching the 2019 peak, AP reported.
These recorded drops in inflation and interest rates, along with the rise of household incomes, may serve to counter an argument frequently raised by Donald Trump against the Biden-Harris administration, and the vice president herself as a presidential nominee. The former president has consistently asserted the economy is under more stress under the current presidency, and would continue to be with Kamala Harris as president, arguing her policies would raise interest, inflation, and consumer costs.
During the debate, Trump falsely characterized the scope of the inflation spike, saying, “They had the highest inflation perhaps in the history of our country.” Yet, inflation reached 14.6% in 1980, which is much higher than the 2022 peak.
