The latest data from the Labor Department shows that wholesale price increases in the United States mostly slowed down last month, indicating a cooling off of inflation pressures. The producer price index, which tracks inflation before it affects consumers, rose by 0.2% from July to August. However, compared to August of the previous year, prices increased by 1.7%, the smallest rise since February, down from a 2.1% annual increase in July.
Excluding volatile food and energy prices, core wholesale prices increased by 0.3% from July and rose by 2.3% from August 2023. These figures suggest that inflation is moving closer to the Federal Reserve’s 2% target level. Prices of essential items like gas, groceries, and autos are stabilizing or rising at pre-pandemic rates after reaching a four-decade high earlier.
After the latest presidential debate, where former President Donald Trump criticized Vice President Kamala Harris for price spikes under the Biden-Harris administration, it’s worth noting that current inflation levels are not the highest in US history. In 1980, inflation was recorded at 14.6%, significantly higher than the 2022 peak of 9.1%.
The Federal Reserve, in its efforts to combat high inflation, raised its benchmark interest rate 11 times between 2022 and 2023, reaching a 23-year high. Now that inflation is nearing the target level, the Fed is expected to begin lowering the key rate from its peak. A slight quarter-point cut is anticipated to be announced after the upcoming central bank meeting, with the goal of supporting economic growth and job creation.
The producer price index is a key indicator of where consumer inflation might be heading next. Economists closely monitor this index as some of its components, like healthcare and financial services, influence the Fed’s preferred inflation measure – the personal consumption expenditures index (PCE). By gradually reducing interest rates, the Fed aims to lower borrowing costs across the economy, including mortgages, auto loans, and credit cards.
