Latest inflation figures revealed – paving the way for a big change that has not happened in years

The Federal Reserve is due to cut interest rates at its next meeting on September 18, bringing benchmark borrowing costs down from a 23-year high and providing some relief for households.

Following an aggressive hiking campaign, interest rates have been between 5.25 and 5.5 percent since July 2023.

The Fed has not cut rates since the start of the Covid-19 pandemic in 2020.

Investors now predict that the central bank will make a quarter percentage point rate cut next week, rather than a rarer half percentage point cut.

A rate cut is good news for consumers, as it would bring down credit card rates and car loans, and help mortgage costs trend lower.

The chance of a larger-than-normal rate cut next week is now around 15 percent, according to the CME FedWatch tool – down from 34 percent on Tuesday.

The hotter-than-expected core inflation figure means the central bank is likely to be more cautious, experts say.

‘With core inflation coming in higher than expected, the Fed’s path to a 50 basis point cut has become more complicated,’ said Seema Shah, chief global strategist at Principal Asset Management.

‘The number is certainly not an obstacle to policy action next week, but the hawks on the committee will likely seize on today’s CPI report as evidence that the last mile of inflation needs to be handled with care and caution – a formidable reason to default to a 25 basis points reduction.’

Credit card rates change in-line with the Fed’s benchmark figure, so would quickly reflect a cut and provide some respite for borrowers.

Mortgage rates are already on the way down, averaging at 6.35 percent for a 30-year fixed-rate deal, as of latest Freddie Mac data from September 5.

Benchmark borrowing costs do not directly affect mortgage rates, but home loans do track the yield on 10-year Treasury bonds.

The bonds are influenced by several factors including predictions around inflation, Fed actions and investor reactions as a result.

This means home loan costs will dip when banks think future cuts are likely.

Elevated mortgage rates have been a deterrent for homebuyers for the last several years, alongside high property prices and a shortage of homes for sale.

Declining mortgage rates would be a boost for those looking to refinance or buy a home, and experts hope this would begin to get the housing market moving.

Food inflation continued to ease last month, in encouraging news for consumers fed up with elevated prices.

Overall, food prices rose 0.1 percent in the month, down from a 0.2 percent rise in July.

On a yearly basis, food prices were up 2.1 percent through August, down from 2.2 percent the month prior.

Prices for fruit and vegetables fell 0.2 percent on a monthy basis, but other essentials were up.

The price of eggs, for example, rose 4.8 percent from July – the largest hike of any products included in the index.

Although food inflation is rising at a lower rate, many Americans are still struggling with food prices in the grocery store.

Food prices have risen by 20 percent in the last five years, according to Labor Department data.

While the annual rate of inflation cooled in August, the monthly ‘core’ price index came in hotter than expected.

This measure, which strips out volatile food and energy prices, rose 0.3 percent – largely driven by housing costs.

Housing has been a particularly stubborn category for inflation, even as other prices have begun to ease.

The cost of housing accounted for more than 70 percent of the year-over-year increase in core prices.

US stocks fell Wednesday morning as Wall Street digested the latest consumer inflation report.

The Dow Jones Industrial Average dropped almost 0.6 percent, the S&P 500 fell around 0.4 percent and the Nasdaq lost around 0.4 percent.

Investors have been eagerly awaiting the inflation numbers to determine how much the Federal Reserve will cut rates by next week.

Prices rose 2.5 percent in the year through August, new figures from the Bureau of Labor Statistics have revealed.

This is lower than economists’ expectations, which had predicted a 2.6 percent hike in prices, and is the lowest annual inflation rate since February 2021.

The consumer price index rose 0.2 percent for the month – the same rate as in July.

‘Core’ prices, which excludes food and energy, rose 0.3 percent from July and 3.2 percent from a year ago.

This was slightly higher than expected, largely due to an increase in housing costs.