WASHINGTON (AP) — An inflation measure closely tracked by the Federal Reserve remained low last month, extending a trend of cooling price increases that clears the way for the Fed to start cutting its key interest rate next month for the first time in 4 1/2 years.
Prices rose just 0.2% from June to July, the Commerce Department said Friday, up a tick from the previous month’s 0.1% increase. Compared with a year earlier, inflation was unchanged at 2.5%. That's just modestly above the Fed's 2% target level.
The slowdown in inflation could upend former President Donald Trump's efforts to saddle Vice President Kamala Harris with blame for rising prices. Still, despite the near-end of high inflation, many Americans remain unhappy with today's sharply higher average prices for such necessities as gas, food and housing compared with their pre-pandemic levels.
Excluding volatile food and energy costs, so-called core inflation rose 0.2% from June to July, the same as in the previous month. Measured from a year earlier, core prices increased 2.6%, also unchanged from the previous year. Economists closely watch core prices, which typically provide a better read of future inflation trends.
Friday’s figures underscore that inflation is steadily fading in the United States after three painful years of surging prices hammered many families’ finances. According to the measure reported Friday, inflation peaked at 7.1% in June 2022, the highest in four decades, before steadily dropping.
In a high-profile speech last week, Fed Chair Jerome Powell attributed the inflation surge that erupted in 2021 to a “collision” of reduced supply stemming from the pandemic’s disruptions with a jump in demand as consumers ramped up spending, drawing on savings juiced by federal stimulus checks.
With price increases now cooling, Powell also said last week that “the time has come” to begin lowering the Fed’s key interest rate. Economists expect a cut of at least a quarter-point cut in the rate, now at 5.3%, at the Fed’s next meeting Sept. 17-18. With inflation coming under control, Powell indicated that the central bank is now increasingly focused on preventing any worsening of the job market. The unemployment rate has risen for four straight months.
Reductions in the Fed’s benchmark interest rate should, over time, reduce borrowing costs for a range of consumer and business loans, including mortgages, auto loans and credit cards.
“The end of the Fed’s inflation fight is coming into view,” Ben Ayers, senior economist at Nationwide, an insurance and financial services provider, wrote in a research note. “The further cooling of inflation could give the Fed leeway to be more aggressive with rate declines at coming meetings.”
Friday's report also showed that healthy consumer spending continues to power the U.S. economy. Americans stepped up their spending by a vigorous 0.5% from June to July, up from 0.3% the previous month.
And incomes rose 0.3%, faster than in the previous month. Yet with spending up more than income, consumers' savings fell, the report said. The savings rate dropped to just 2.9%, the lowest level since the early months of the pandemic.
Ayers said the decline in savings suggests that consumers will have to pull back on spending soon, potentially slowing economic growth in the coming months.
The Fed tends to favor the inflation gauge that the government issued Friday — the personal consumption expenditures price index — over the better-known consumer price index. The PCE index tries to account for changes in how people shop when inflation jumps. It can capture, for example, when consumers switch from pricier national brands to cheaper store brands.
In general, the PCE index tends to show a lower inflation rate than CPI. In part, that’s because rents, which have been high, carry double the weight in the CPI that they do in the index released Friday.
At the same time, the economy is still expanding at a healthy pace. On Thursday, the government revised its estimate of growth in the April-June quarter to an annual rate of 3%, up from 2.8%.
Shoppers consider items displayed in refrigerators at a Costco warehouse Aug. 22, 2024, in Parker, Colo. (AP Photo/David Zalubowski)
FILE - People shop at a Walmart Superstore in Secaucus, New Jersey, July 11, 2024. (AP Photo/Eduardo Munoz Alvarez, File)
KYIV, Ukraine (AP) — Ukraine made a new call Saturday on the West to allow it to strike deeper into Russia after a meeting between U.S. and British leaders a day earlier produced no visible shift in their policy on the use of long-range weapons.
“Russian terror begins at weapons depots, airfields, and military bases inside the Russian Federation,” Ukrainian presidential adviser Andriy Yermak said Saturday. “Permission to strike deep into Russia will speed up the solution.”
The renewed appeal came as Kyiv said Russia launched more drone and artillery attacks into Ukraine overnight.
Ukrainian officials have repeatedly called on allies to greenlight the use of Western-provided long-range weapons to strike targets deep inside Russian territory. So far, the U.S. has allowed Kyiv to use American-provided weapons only in a limited area inside Russia’s border with Ukraine.
Discussions on allowing long-range strikes were believed to be on the table when U.S. President Joe Biden and British Prime Minister Keir Starmer met in Washington on Friday but no decision was announced immediately.
Ukrainian President Volodymyr Zelenskyy has been pressing the U.S. and other allies to allow his forces to use Western weapons to target air bases and launch sites farther afield as Russia has stepped up assaults on Ukraine’s electricity grid and utilities before winter.
He did not directly comment on the meeting Saturday morning, but said that more than 70 Russian drones had been launched into Ukraine overnight. The Ukrainian air force later said that 76 Russian drones had been sighted, of which 72 were shot down.
“We need to boost our air defense and long-range capabilities to protect our people,” Zelenskyy wrote on social media. “We are working on this with all of Ukraine’s partners.”
Other overnight attacks saw one person killed by Russian artillery fire as energy infrastructure was targeted in Ukraine’s Sumy region. A 54-year-old driver was killed and seven more people were hospitalized, Ukraine’s Ministry of Energy said.
A KAB aerial bomb also fell on a garage complex in the eastern city of Kharkiv, said regional Gov. Ihor Terekhov. No injuries were reported.
Meanwhile, officials in Moscow have continued to make public statements warning that long-range strikes would provoke further escalation between Russia and the West. The remarks are in line with the narrative the Kremlin has promoted since early in the war, accusing NATO countries of de-facto participation in the conflict and threatening a response.
Russian Deputy Foreign Minister Sergei Ryabkov told state news agency Tass on Saturday that the U.S. and British governments were pushing the conflict, which began with Russia's full-scale invasion of Ukraine in February 2022, toward “poorly controlled escalation.”
Biden on Friday brushed off similar comments by Russian President Vladimir Putin, who said on Thursday that allowing long-range strikes “would mean that NATO countries, the United States and European countries, are at war with Russia.”
Asked what he thought about Putin’s threat, Biden answered, “I don’t think much about Vladimir Putin.”
Russian and Ukrainian officials also announced on Saturday a prisoner swap brokered by the United Arab Emirates. It included 206 prisoners on both sides, including Russians captured in Ukraine’s incursion in the Kursk region.
The swap is the eighth of its kind since the beginning of 2024, and puts the total number of POWs exchanged at 1,994. Previous exchanges were also brokered by the UAE.
Both sides released images of soldiers traveling to meet friends and family, with Zelenskyy commenting, “Our people are home."
Elsewhere, Russia’s Defense Ministry said that 19 Ukrainian drones had been shot down over the country’s Kursk and Belgorod regions. No casualties were reported.
Follow AP’s coverage of the war in Ukraine at https://apnews.com/hub/russia-ukraine
A Ukrainian poses for a selfie as he is greeted after being released in a prisoner exchange at an undisclosed location in Ukraine, Saturday Sept. 14, 2024. (Ukrainian Presidential Press Office via AP)
Ukrainians pose for a photo after being released in a prisoner exchange at an undisclosed location in Ukraine, Saturday Sept. 14, 2024. (Ukrainian Presidential Press Office via AP)
Ukrainians pose for a photo after being released in a prisoner exchange at an undisclosed location in Ukraine, Saturday Sept. 14, 2024. (Ukrainian Presidential Press Office via AP)
Ukrainians pose for a photo after being released in a prisoner exchange at an undisclosed location in Ukraine, Saturday Sept. 14, 2024. (Ukrainian Presidential Press Office via AP)
A Ukrainian reacts after being released in a prisoner exchange at an undisclosed location in Ukraine, Saturday Sept. 14, 2024. (Ukrainian Presidential Press Office via AP)
Ukrainians react after being released in a prisoner exchange at an undisclosed location in Ukraine, Saturday Sept. 14, 2024. (Ukrainian Presidential Press Office via AP)
A Ukrainian serviceman, left, is greeted after being released in a prisoner exchange at an undisclosed location in Ukraine, Saturday Sept. 14, 2024. (Ukrainian Presidential Press Office via AP)
