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Economic News

United States: Inflation Drops below 3%

August 14, 2024
Francis Généreux
Principal Economist

Highlights

  • The consumer price index (CPI) rose 0.2% in July, after dipping 0.1% in June and stalling (0.0%) in May. The index for all items less food and energy rose 0.2% in July after inching up 0.1% in June.
  • The year-over-year change in total CPI slowed from 3.0% in June to 2.9% in July. Core inflation edged down from 3.3% to 3.2%.

Comments

For the first time since March 2021, the year-over-year change in total CPI fell clearly below 3% (it was 2.97% in June). We’ve come a long way since inflation peaked at over 9.1% in June 2022, and this is further evidence that the Federal Reserve is slowly winning its long fight against post-pandemic inflation.

 

July’s year-over-year and month-over-month changes in the all items and core indexes were in line with consensus expectations. The energy index was unchanged over the month. While the fuel oil index jumped 0.9%, the index for natural gas fell 0.7%, and gasoline was flat. This contrasts with the fairly sharp drops in energy prices observed in the United States in May and June. The food index increased 0.2% in July, as it did in June, although the food away from home index posted its smallest rise since February (0.2%).

 

Once again, changes in the core CPI show that goods and service prices are on different paths. Prices for goods excluding food and energy fell 0.3%, the largest monthly decline since January. This was due in part to a 2.5% drop in the price of used cars and trucks and a 0.4% decline in apparel prices. The year-over-year change in goods prices has sat at -1.7% for the past three months.

 

Progress is still less obvious when it comes to services. Year-over-year price growth for services excluding energy came in at 4.9% in July. While still high, it has come down from the 7%+ peaks we saw a year and a half ago. Month-over-month, service prices picked up slightly in July (+0.3%) compared to June (0.1%) and May (0.2%). This stronger monthly advance was primarily caused by higher shelter and transportation services prices, although airline fares dropped by another 1.6%. That said, the 3-month annualized change in service prices excluding energy and shelter slowed to just 0.5% in July, a pace that Fed officials should welcome with open arms.

Implications

Inflation continues to slow in the United States. After disappointing data in the first few months of 2024, price movements have been much more encouraging in the past three months. This keeps the door open for the Federal Reserve to start cutting rates at its September meeting.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.