In a seemingly positive sign for consumers, inflation has now posted the lowest recent annual increase two months in a row.
Previously, in July 2024, the Consumer Price Index (CPI)—key inflation gauge assembled by the U.S. Bureau of Labor Statistics—rose only 2.9% year-over-year. In the latest CPI for August, the index rose by 2.5%, continuing a steady decline since May 2024. The August reading is the lowest annual increase recorded since February 2021 (1.7%).
On a month-by-month basis, the CPI increased by 0.2%, the same gain recorded from June to July.
However, “core” inflation (excluding food and energy prices, which are most likely to fluctuate) saw a slight increase to 0.3%, compared to 0.2% in July. Shelter inflation—showing the cost of housing, primarily driven by rents—was up 5.2% in August, a slight increase from July’s 5.1% increase.
Dr. Lisa Sturtevant, chief economist at Bright MLS, also noted that the results of lower inflation are somewhat deceiving.
“Although inflation has eased, it does not mean that the prices of things that people buy have actually fallen. It just means that prices are not increasing as fast. In fact, U.S. consumers now are paying more than 20% more for goods and services than they were before the pandemic. The persistence of higher inflation has weighed on Americans, so even as inflation has fallen, consumer confidence is eroding.”
Though consumer confidence rose slightly in August, it did not substantially improve from where confidence has been since the pandemic began.
Nonetheless, experts expect this result will not halt the widely expected rate cut coming from the Federal Reserve later this month, though major stock indexes fell in the wake of the report as investors parsed out the chance of a larger cut.
“Today’s data is one of the last major data checkpoints on the road to the Fed’s meeting and decision in September,” said Realtor.com® Chief Economist Danielle Hale. “It holds vital clues about the likely size of the Fed’s cut in September, which is widely believed to be a given, at this point. In my view, the continued decline in August inflation solidifies the path for a rate cut in September. The mixed headline and core CPI readings open the door to a lively debate about whether a quarter point cut or half point cut will be appropriate. My expectation is that the Fed will proceed with a quarter point cut, opting to continue to be patient and leaving more room to move on an every-meeting cadence, but this will be a close call.”
Hale noted that with recent CPI findings, in conjunction with slower than expected job growth, the signs that the Fed should cut rates are present across multiple economic barometers.
Projecting what a rate cut—and already in-motion mortgage rate declines—could mean for the home-buying market, Hale said: “It is coming a bit too late in the year to salvage the 2024 home-buying season, but flexible buyers could be poised to benefit. The fall market is the best time to buy for homebuyers who can take advantage of generally lower competition and prices, and will have the added boost of extra purchasing power this year as mortgage rates fall. While lower mortgage rates could help draw in some additional buyers, ample inventory should help to absorb the boost in demand, and the usual seasonal slowdown is likely to keep a top on competitiveness.”
Sturtevant also said that the rate cut is unlikely to upend the housing market: “We will likely not see a big impact on housing affordability. Prospective homebuyers expecting mortgage rates to drop dramatically after the Fed cuts rates will be disappointed. The impact of the Fed lowering short-term rates has already been largely baked into mortgage rates, which have been falling since early July. High home prices and a lack of supply continue to be driving affordability challenges in the market.”
For the full CPI report, click here.
