In September, all eyes have been on the Consumer Price Index (CPI), as the report showed that overall prices rose by only 3.7%. This is the fourth consecutive month of slowing inflation and is much lower than the 4.2% peak witnessed earlier this year. This news is surely good news for consumers, and businesses, who are likely welcoming any reprieve from the rapidly escalating prices experienced over the past several months.
In July, Consumer Price Index (CPI) began to level off, rising by just 3.0%, with the same figure again being reported in August. This marked the first time that overall consumer prices had dropped below the 4% mark since April, when prices rose by the highest rate since the 2008 financial crisis. This trend of moderating prices has been attributed to a combination of factors.
First, the slowing labor market now appears to be impacting wages and salaries, resulting in slower growth in workers’ earnings, and thereby leading to a reduction in purchasing power. This has, in-turn, contributed to reduced demand for some consumer goods, resulting in a slowing in prices.
Second, global economic activity, which has been faltering in recent months, is now cooling more significantly and leading to some reduction in prices of oil and other energy commodities. This may further imply that the slowdown in inflation could continue well into next year as more evidence of weak economic indicators come to the fore, thus putting downward pressure on prices.
At 3.7%, the current rate is well within the Federal Reserve’s 2%-3% target range and is also lower than the rate of 3.9% for the same period last year. Furthermore, core inflation, which excludes food and energy, also slowed down to 2.4%, providing some more evidence that the recent moderation in prices is likely to continue into the near-term.
All in all, this latest news of slowing inflation is positive, and should bring some welcome relief to consumers and businesses alike. It remains to be seen however, whether this trend could last for the remainder of 2019, and whether the declines witnessed this month could continue going forward.