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Inflation has dropped below 3 percent for the first time in more than three years, according to the Bureau of Labor Statistics on Wednesday.
Annual inflation in July was 2.9 percent - under 3 percent for the first time since March 2021, when prices increased due to impacts of the pandemic.
The news means that the Federal Reserve could possibly cut interest rates to ease pressures on the economy. The new numbers were close to what analysts expected and may lead to officials at the central bank agreeing to cut interest rates during their policy meeting next month.
The Bureau of Labor Statistics said that the consumer price index increased 0.2 percent last month, after decreasing by 0.1 percent in June.
Officials have said for months that borrowing costs won’t be eased until they are sure that inflation is decreasing to normal levels.
There have been downsides to having interest rates remain high for too long. Hiring has slowed and global financial markets appear concerned that the Federal Reserve may have put too much pressure on the US economy, The Washington Post noted.
Housing remains the main driver of inflation, accounting for almost 90 percent of the monthly rise. On a month-to-month basis, rents rose by 0.5 percent, compared to a rise of 0.3 percent in June. The measure of homeownership costs also rose.
Meanwhile, energy costs were stagnant after several months of decreases.
Car insurance and home furniture were on the rise in July while used cars, healthcare, flights, and clothing costs went down compared to the previous month.
The cost of gas is also down compared to last year, with possible interest rate cuts in September affording some hope to those who are trying to get a mortgage, a loan for a car, or expand their businesses.
Inflation remains higher than the pre-pandemic level of 2 percent but it has slowed significantly since 2022, when it peaked at 9.1 percent.
The Federal Reserve has held interest rates at 5.3 percent for the last year, which remains relatively high.
The main question for investors is if the Fed will cut rates by a quarter of a percentage point or by half a point, which would be a larger-than-normal cut, The New York Times reported.
Federal Reserve Board Chair Jerome Powell said in July that recent reports of inflation figures were “a little better than what we saw last year” noting that a “broader disinflation” was settling in, according to The Post.
Inflation fell in 2023 partly because people stopped buying home office and exercise equipment that had flown off the shelves during the pandemic.
“This is so much better than where we were even a year ago,” Powell added. “It’s a lot better. The job is not done, I want to stress that, and we’re committed to getting inflation sustainably under two percent. But we need to take note of that progress.”
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