Payam Javan: In August, the U.S. annual inflation rate eased to 2.5%, falling below economists’ expectations and indicating a stabilization in broad-based price pressures across the economy. The consumer price index (CPI) slowed from 2.9% in July, with a monthly increase of 0.2% remaining steady from the previous month. Core inflation, excluding volatile categories like energy and food, remained at 3.2%, consistent with projections, while core CPI rose by 0.3%, up from 0.2% in July. Services inflation held steady at 4.9%, and cumulative inflation since January 2021 has surged by 20%.

Food inflation showed little change, but specific items like eggs and milk experienced monthly price increases. The energy index declined by 0.8% from July, with a significant 4% drop year-over-year, partly due to falling crude oil prices driven by global demand concerns and reduced Middle East tensions. This decrease has led to a 15% drop in national gasoline prices compared to last year. Shelter costs continued to rise, advancing by 0.4% monthly and 4.9% annually, with rents contributing significantly to the CPI’s monthly increase. Economists expect shelter inflation to remain above pre-pandemic levels into 2025, with a slow reflection of market rent changes in CPI measures.

Market reactions to the CPI report were mixed, with U.S. stocks falling and Treasury yields rising. The U.S. dollar strengthened, surpassing the 101.6 threshold. This report precedes the Federal Open Market Committee’s policy meeting, where a quarter-point rate cut is anticipated. Fed Chair Jerome Powell has indicated readiness for policy adjustments, with the potential for the first rate cut since the pandemic’s onset. While markets expect significant rate reductions over the next year, some strategists predict a cautious approach due to persistently high supercore inflation and steady economic growth.