(Washington) Inflation slowed in August in the United States, according to the PCE index, favored by the Fed which began to lower its rates, while high prices remain one of the main concerns of voters, to a month now from November 5.
The increase in the inflation index fell in August to 2.2% year-on-year, compared to 2.5% in July, the Commerce Department announced on Friday.
Analysts had expected 2.3% in August, according to the MarketWatch consensus.
“Inflation has returned to 2.2%, similar to pre-pandemic levels, at a time when interest rates have fallen, reducing the cost of buying a home or property. a car, or operating a small business,” greeted President Joe Biden in a statement.
The inflation that Americans have been facing for several years, and which has affected many other countries around the world, is one of the main concerns of voters, who will have to choose on November 5 between Democrat Kamala Harris and Republican Donald Trump .
However, so-called core inflation, which excludes volatile food and energy prices, rebounded in August compared to July, to 2.7% over one year compared to 2.6%.
This is the first increase in this measure “since January 2023”, notes John Choong, analyst for Investors Edge.
“PCE inflation has slowed to 2.2%, close to the Fed’s 2% target,” but the rebound in the underlying index “shows that inflationary pressures persist, particularly in housing and services,” also points out Anita Wright, from Bolton James.
Election result
Over one month alone, the inflation indices, both general and underlying, slowed to +0.1% compared to +0.2% in July.
As for the increase in American household income, it slowed down slightly, to 0.2% compared to 0.3% in July. Their expenses too: +0.2% against +0.5%.
The PCE index is the one favored by the American central bank (Fed), and whose progression it wants to reduce to 2% over one year, a level considered healthy for the economy.
Another inflation index, the CPI, on which pensions are indexed, stood in August at its lowest since February 2021, +2.5% over one year.
This has restored consumer confidence, the index measuring it recovered in September, the University of Michigan also announced on Friday. Because Americans are now “fully aware that inflation has continued to slow,” underlined the director of the survey, Joanne Hsu.
But “many consumers continue to say that their expectations depend on the results of the next election,” she said.
The slowdown in inflation convinced the Fed to begin, on September 18, to lower its rates, which had been at their highest level in more than 20 years since July 2023.
This monetary policy increased the cost of credit for households, and its easing should restore their purchasing power.
Risk of a rebound
For this first rate cut since 2020, the Fed hit hard with a half-point cut, and its chairman, Jerome Powell, signaled that it was a “start”.
Although the Fed is independent of political power, its decision was seen by the Trump camp as a boost to Kamala Harris who hailed “good news for the Americans”.
The Fed, while insisting that the job market is in good health, above all wants to prevent unemployment, the rate of which fell slightly to 4.2% in August, from rising too sharply.
Most Fed officials, who had focused on lowering inflation in recent years, are now worried about too much deterioration in the job market.
Only one governor, Michelle Bowman, however, still considers that “the risks of seeing inflation start to rise again remain significant”, and “higher” than those linked to unemployment.
The next Fed meeting will take place on November 6 and 7, the day after the election.