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Annual US inflation falls to 3-year low, clearing the way for the Fed to begin cutting rates

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Annual US inflation falls to 3-year low, clearing the way for the Fed to begin cutting rates
News

News

Annual US inflation falls to 3-year low, clearing the way for the Fed to begin cutting rates

2024-08-15 02:11 Last Updated At:02:20

WASHINGTON (AP) — Year-over-year inflation reached its lowest level in more than three years in July, the latest sign that the worst price spike in four decades is fading and setting up the Federal Reserve for an interest rate cut in September.

Wednesday's report from the Labor Department showed that consumer prices rose just 0.2% from June to July after dropping slightly the previous month. Measured from a year earlier, prices rose 2.9%, down from 3% in June. It was the mildest gain since March 2021.

The ongoing inflation slowdown could affect the presidential campaign, given that former President Donald Trump has highlighted rampant inflation as a key failing of the Biden administration and its energy policies. Vice President Kamala Harris has said she would soon unveil new proposals to “bring down costs and also strengthen the economy overall.”

The government said nearly all of July's inflation reflected higher rental prices and other housing costs, a trend that, according to real-time data, is easing. As a result, housing costs should rise more slowly in the coming months, contributing to lower inflation.

The report showed that inflation is steadily falling closer to the Fed’s 2% target — though not too quickly, which might suggest that the economy is weakening, said Tara Sinclair, an economist at George Washington University and a former Treasury Department official.

“It’s a comforting report, both because it is going in the right direction and because it is not doing anything too dramatic,” Sinclair said. “It is exactly what we wanted to see.”

In July, grocery prices rose just 0.1% and are a scant 1.1% higher than they were a year earlier, a much slower pace of growth than in previous years. Yet many Americans are still struggling with food prices, which remain 21% above where they were three years ago.

Gas prices were unchanged from June to July and have actually fallen 2.2% in the past year. Clothing prices also dropped last month; they're nearly unchanged from 12 months earlier. New and used car prices fell in July, too. Used car prices, which had skyrocketed during the pandemic, have tumbled nearly 11% in the past year.

Some food prices, including for meat, fish and eggs, are still increasing faster than before the pandemic. Dairy and fruit and vegetable prices, though, fell in July.

Even as inflation — the rate of price increases — keeps slowing, many people are still struggling with daily costs that, on average, are still about 20% higher than they were three years ago. That's true even though average U.S. wages have surpassed inflation for more than a year.

Ariel Borchuk, who lives in the Harlem area of New York City, complained that the government's inflation reports don’t mean anything to “regular people” like himself.

“Everything," he said, “is expensive. What more do you need to know?”

Borchuk, 48, who works in the catering business, had just grabbed a hot fried chicken sandwich for $7.99 at a grocery store on Manhattan’s Upper East Side. It’s something he says he really can’t afford.

Borchuk said he’s been cooking more at home and eating out less and buying more of his groceries at Costco, where he said he can get good deals.

Austan Goolsbee, president of the Federal Reserve's Chicago branch, said Wednesday in an interview with The Associated Press that the July data shows that inflation is clearly on track to return to the central bank's 2% target. He also noted that there are signs that the job market is weakening even while the Fed’s key rate remains at its highest level in decades.

Goolsbee's remarks suggested that he would support a series of rate cuts in the coming months.

At a White House event Wednesday, President Joe Biden was asked whether the nation had defeated inflation.

“Yes, yes, yes,” he said. “I’ve told you we’re going to have a soft landing," he added, referring to an economy in which inflation is tamed without a steep recession.

For nearly a year, cooling inflation has provided gradual relief to America’s consumers, who were stung by the price surges that erupted three years ago. Inflation peaked two years ago at 9.1%, the highest level in four decades.

In July, excluding volatile food and energy costs, so-called core prices climbed a mild 0.2% from June, after a 0.1% increase the previous month. And compared with a year earlier, core inflation slowed from 3.3% to 3.2% — the lowest level since April 2021. Core prices are closely watched by economists because they typically provide a better read of where inflation is headed.

Fed Chair Jerome Powell has said he is seeking additional evidence of slowing inflation before the Fed begins cutting its key interest rate. Economists widely expect the Fed’s first rate cut to occur in mid-September, and will be followed by additional cuts in November and December. Investors are betting that at least one of those cuts will be a half-point, according to future prices.

When the central bank lowers its benchmark rate, over time it tends to reduce the cost of borrowing for consumers and businesses. Mortgage rates have already declined in anticipation of the Fed’s first rate reduction.

Many companies have slowed their price increases as consumers have become more resistant to paying more. Mark Barrocas, CEO of SharkNinja, a small appliance-maker in Needham, Massachusetts, said the company raised its prices 5% to 7% in 2021 and 2022 but hasn’t done so since. For some items, it recently reduced prices to where they were before the earlier hikes took effect.

Inflation has eased substantially in the past two years as global supply chains have been repaired, a spate of apartment construction in many large cities has cooled rental costs and higher interest rates have slowed auto sales, forcing dealers to offer better deals to potential car buyers.

Consumers, particularly lower-income ones, are also becoming more price-sensitive, forgoing high-priced items or shifting to cheaper alternatives. This has forced many companies to rein in price hikes or even offer lower prices.

AP Writers Anne D’Innocenzio in New York and Fatima Hussein in Washington contributed to this report.

FILE - James Pratt, head cashier at Phantom Fireworks in Hinsdale, N.H., helps bag a customer's order on June 28, 2024. (Kristopher Radder /The Brattleboro Reformer via AP, File)

FILE - James Pratt, head cashier at Phantom Fireworks in Hinsdale, N.H., helps bag a customer's order on June 28, 2024. (Kristopher Radder /The Brattleboro Reformer via AP, File)

FILE - People ride on the Mamba roller coaster at Worlds of Fun theme park as storm clouds build in the distance on June 21, 2024, in Kansas City, Mo. (AP Photo/Charlie Riedel, File)

FILE - People ride on the Mamba roller coaster at Worlds of Fun theme park as storm clouds build in the distance on June 21, 2024, in Kansas City, Mo. (AP Photo/Charlie Riedel, File)

FILE - Elise Lacroix, owner of Stop & Go in Brattleboro, Vt., changes the oil on a vehicle at her shop on July 15, 2024. (Kristopher Radder/The Brattleboro Reformer via AP, File)

FILE - Elise Lacroix, owner of Stop & Go in Brattleboro, Vt., changes the oil on a vehicle at her shop on July 15, 2024. (Kristopher Radder/The Brattleboro Reformer via AP, File)

WASHINGTON (AP) — The Senate quickly confirmed Marco Rubio as secretary of state Monday, voting unanimously to give President Donald Trump the first member of his new Cabinet on Inauguration Day.

Rubio, the Republican senator from Florida, is among the least controversial of Trump’s nominees and vote was decisive, 99-0. Another pick, John Ratcliffe for CIA director, is also expected to have a swift vote, as soon as Tuesday. Action on others, including former combat veteran and Fox News host Pete Hegseth for defense secretary, is possible later in the week.

“Marco Rubio is a very intelligent man with a remarkable understanding of American foreign policy,” Sen. Chuck Grassley of Iowa, the senior-most Republican, said as the chamber opened.

It’s often tradition for the Senate to convene immediately after the ceremonial pomp of the inauguration to begin putting the new president’s team in place, particularly the national security officials. During Trump’s first term, the Senate swiftly confirmed his defense and homeland security secretaries on day one, and President Joe Biden’s choice for director of national intelligence was confirmed on his own Inauguration Day.

With Trump’s return to the White House, and his Republican Party controlling majorities in Congress, his outsider Cabinet choices are more clearly falling into place, despite initial skepticism and opposition from both sides of the aisle.

Rubio, who was surrounded by colleagues in the Senate chamber, said afterward he feels “good, but there’s a lot of work ahead.”

“It’s an important job in an important time, and I’m honored by it,” Rubio said.

Senate Majority Leader John Thune moved quickly Monday, announcing he expected voting to begin “imminently” on Trump’s nominees.

Democrats have calculated it's better for them to be seen as more willing to work with Trump, rather than simply mounting a blockade to his nominees. They're holding their opposition for some of his other picks who have less support, including Tulsi Gabbard for director of national intelligence and vaccine skeptic Robert F. Kennedy Jr. for health secretary.

Senate Democratic Leader Chuck Schumer said his party will “neither rubber-stamp nominees we feel are grossly unqualified, nor oppose nominees that deserve serious consideration.”

Rubio, he said, is an example of "a qualified nominee we think should be confirmed quickly."

Senate committees have been holding lengthy confirmation hearings on more than a dozen of the Cabinet nominees, with more to come this week. And several panels are expected to meet late Monday to begin voting to advance the nominees to the full Senate for confirmation.

The Senate Foreign Relations Committee unanimously advanced Rubio's nomination late Monday. The Senate Armed Services Committee and Senate Intelligence Committee, respectively, voted to move the nominations of Hegseth and Ratcliffe. And the Homeland Security and Government Affairs Committee advanced nominees Kristi Noem as homeland security secretary and Russell Vought as director of the Office of Management and Budget, but with opposition.

Rubio, a well-liked senator and former Trump rival during the 2016 presidential race, has drawn closer to the president in recent years. He appeared last week to answer questions before the Foreign Relations Committee, where he has spent more than a decade as a member.

As secretary of state, Rubio would be the nation’s top diplomat, and the first Latino to hold the position. Born in Miami to Cuban immigrants, he has long been involved in foreign affairs, particularly in South America, and has emerged as a hawk on China’s rise.

During his confirmation hearing last week, Rubio warned of the consequences of America’s “unbalanced relationship” with China. While he echoes Trump’s anti-globalist rhetoric, Rubio is also seen as an internationalist who understands the power of U.S. involvement on the global stage.

Rubio cultivated bipartisan support from across the aisle, both Republicans and Democrats. He takes over for outgoing Secretary of State Antony Blinken, who has said he hopes the Trump administration continues Biden's policies in the Middle East to end the war in Gaza and to help Ukraine counter Russian nomination.

The Senate is split 53-47, but the resignation of Vice President JD Vance and, soon, Rubio drops the GOP majority further until their successors arrive. Republicans need almost all every party member in line to overcome Democratic opposition to nominees.

Objection from any one senator, as is expected with Hegseth and several other choices, would force the Senate into procedural steps that would drag voting later into the week.

Associated Press writers Farnoush Amiri and Mary Clare Jalonick contributed to this report.

President-elect Donald Trump's Cabinet picks, other nominees and appointments, pose for a photo at the National Gallery of Art in Washington, Saturday, Jan. 18, 2025. First row from left, Elise Stefanik, John Ratcliffe, Lori Chavez-DeRemer, Howard Lutnick, Pete Hegseth, Doug Burgum, Brooke L. Rollins, Marco Rubio and Robert F. Kennedy Jr.; second row from left, Scott Turner, Tulsi Gabbard, Sean Duffy, Linda McMahon, Lee Zeldin, Kristi Noem, Chris Wright, Doug Collins, Kelly Loeffler and Scott Bessent; and third row from left, Stephen Miran, Jamieson Greer, Kevin Hassett, Kash Patel and Russell Vought. (AP Photo/Mark Schiefelbein)

President-elect Donald Trump's Cabinet picks, other nominees and appointments, pose for a photo at the National Gallery of Art in Washington, Saturday, Jan. 18, 2025. First row from left, Elise Stefanik, John Ratcliffe, Lori Chavez-DeRemer, Howard Lutnick, Pete Hegseth, Doug Burgum, Brooke L. Rollins, Marco Rubio and Robert F. Kennedy Jr.; second row from left, Scott Turner, Tulsi Gabbard, Sean Duffy, Linda McMahon, Lee Zeldin, Kristi Noem, Chris Wright, Doug Collins, Kelly Loeffler and Scott Bessent; and third row from left, Stephen Miran, Jamieson Greer, Kevin Hassett, Kash Patel and Russell Vought. (AP Photo/Mark Schiefelbein)

Sen. Marco Rubio, R-Fla., a nominee for Secretary of State, attends the 60th Presidential Inauguration in the Rotunda of the U.S. Capitol in Washington, Monday, Jan. 20, 2025. (Kevin Lamarque/Pool Photo via AP)

Sen. Marco Rubio, R-Fla., a nominee for Secretary of State, attends the 60th Presidential Inauguration in the Rotunda of the U.S. Capitol in Washington, Monday, Jan. 20, 2025. (Kevin Lamarque/Pool Photo via AP)

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