The latest report on closely watched US inflation showed consumer price increases eased year-on-year in August, according to the latest data from the Bureau of Labor Statistics released on Wednesday morning.
The Consumer Price Index (CPI) rose 2.5% from a year earlier in August, down from a 2.9% annual increase in July and the lowest annual rate since early 2021. This annual increase was also in line with economists' expectations.
The index rose by 0.2% compared to the previous month, the same as the monthly increase in July and as expected by economists.
On a “core” basis, which excludes the more volatile cost of food and gas, prices in August rose 0.3% from the previous month and 3.2% from a year earlier. Core prices rose 0.2% month-on-month and 3.2% year-on-year in July.
Although inflation is slowing, it is still above the 2% target set by the Federal Reserve on an annual basis. However, the latest economic data, including a weakening job market, suggest that an interest rate cut is likely ahead of the Federal Reserve's next policy meeting on September 18.
"It is time for policy to be adjusted," Fed Chairman Jerome Powell said at the Kansas City Federal Reserve's annual economic symposium in Jackson Hole, Wyoming, last month.
The question now is how much of a policy adjustment the Fed will make in reducing interest rates.
As of yesterday, the market expected a near 100% chance the Federal Reserve would cut interest rates by the end of its meeting in September. However, immediately after the data was released, the odds of a rate cut of 50 basis points versus 25 basis points were 73/27 after the 56/44 odds placed by traders last week, according to CME's FedWatch Tool.
