The Consumer Price Index cooled in July compared with a year earlier, providing further evidence that inflation is moderating and likely keeping the Federal Reserve firmly on track to cut interest rates at its meeting next month.
Overall inflation was 2.9 percent in July every year, the Bureau of Labor Statistics reported, easing slightly from 3 percent in June. The figure was milder than economists had expected, and it marked the first time inflation has slipped below 3 percent since 2021.
While inflation still exceeds the 2 percent that was normal before the coronavirus pandemic, it is much slower than the 9.1 percent peak in 2022.
After stripping out food and fuel prices, a closely watched “core” index climbed 3.2 percent from a year earlier, a step down from the previous report and in line with expectations. Economists pay attention to that number because it gives a sense of the underlying inflation trend.
Here’s what else to know:
Every month, inflation was in line with economists’ expectations and slightly warmer than last month. Food prices increased 0.2 percent from the previous month, continuing a significant slowdown. But shelter was more problematic. Rents rose 0.5 percent, versus a 0.3 percent gain in June, and the government’s measure of homeownership costs also accelerated.
“It really ticks the box for a September rate cut,” says Gennadiy Goldberg from TD Securities. He said the “big question” for Fed officials is how much to cut interest rates now, and that will probably hinge on the job market.
The Fed has held interest rates at a relatively high 5.3 percent for the past year. Investors think that the big question is whether next month policymakers will cut rates by a quarter of a percentage point, a typical move, or by a half-point, which would be an unusually large cut.
The inflation report left many Democrats feeling victorious. “We’ve won the battle against inflation,” Bharat Ramamurti, former deputy director of the National Economic Council, wrote on X. While President Biden also cheered the inflation figures, he cautioned that the cost of living remained too expensive.
Wall Street had been on edge heading into the inflation report after sharp stock swings this month reignited fears over the economy’s direction. The market staged a muted reaction to the report.
Fed policymakers aim for 2 percent annual inflation based on the Personal Consumption Expenditures inflation measure, which comes out later than the Consumer Price Index. That data for July will be released on Aug. 30.
After more than two years of being politically battered over soaring prices, Wednesday’s inflation report left many Democrats feeling victorious.
Consumer prices rose 2.9 percent in the year through July, falling below 3 percent for the first time since 2021. The report keeps the Federal Reserve on track to cut interest rates next month, a move that could lift economic sentiment in the United States ahead of the November election.
“We’ve won the battle against inflation,” Bharat Ramamurti, former deputy director of the National Economic Council, wrote on X. “It’s time for the Fed to begin cutting rates.”
Congressional Democrats were also using the report to push the Fed to cut aggressively.
“Inflation is down,” Senator Martin Heinrich of New Mexico, the chairman of the Joint Economic Committee, said in a news release. “The price of gas or a new car has fallen over the last year. And many families can now breathe a bit easier. Now, we need to make sure that this relief is reaching all Americans.”
Republicans have been hammering Democrats over inflation and are unlikely to let them off the hook. They continue to note that prices are up nearly 20 percent since President Biden took office and note that the labor market is showing signs of slowing.
“Despite a small improvement in the rate of price increases, the damage from the Biden-Harris administration’s philosophy of ‘tax it, regulate it, and spend it’ is done and continues to plague the economy,” said Representative Jodey Arrington of Texas, the chairman of the House Budget Committee. “It’s hard to fathom how hardworking American families can survive another four years of the Biden-Harris failed economic agenda.”
Vice President Kamala Harris, the Democratic presidential nominee, has pledged to crack down on corporate price gouging and is expected to lay out additional plans for lowering costs in a speech this week.
Former President Donald J. Trump, her Republican opponent, will hold a rally in Pennsylvania this weekend with a focus on inflation, according to his campaign. He has claimed that the Biden administration’s spending policies have fueled record levels of inflation.
“Under Kamala Harris, everything costs 20 percent more than it did under President Trump,” said Karoline Leavitt, the Trump campaign’s national press secretary. “America cannot afford another four years of Kamala’s failed economic policies.”
While Mr. Biden cheered the inflation figures, he cautioned that the cost of living remained too expensive. He said large corporations had been sitting on record profits and failing to do enough to help.
“We have more work to do to lower costs for hardworking Americans, but we are making real progress,” Mr. Biden said while noting that wages have outpaced price increases for 17 months running. “Prices are still too high.”
For more than two years, the economy's big problem was inflation — it was the key irritant for policymakers, the White House, and American consumers.
- Wednesday's Consumer Price Index report confirms that is no longer the case: Prices are no longer rising rapidly, which means the battle to kill inflation appears all but over.
Inflation looked to be coming down alongside a still-flourishing economy — until recently. The string of upbeat inflation data is all but certain to allow Fed officials to more comfortably shift their attention to the weakening labor market and lower interest rates.
"[T]he cumulative improvement in the overall inflation data over the past year now gives the Federal Reserve cover to move into risk management mode with the intent of protecting and preserving the soft landing," Joe Brusuelas, chief economist at accounting firm RSM, wrote Wednesday.
Overall CPI rose 2.9% in the 12 months ending in July, dropping below 3% for the first time since 2021.
- Core CPI, which excludes food and energy prices, rose 3.2% — the smallest increase in three years.
- By a different measure, inflation looks more benign. Over the last three months, core CPI rose 1.6% on an annualized basis, down from 2.1% in June.
Prices for many key items increased more slowly — or, in some cases, got cheaper over the month.
- Grocery costs have been rising at a mild pace since February, including a 0.1% increase in July. Prices are up just 1% compared to the same time last year.
- Used vehicle costs fell 2.3% in July, a bigger drop than that seen the previous month. New vehicle prices fell 0.2%, the sixth straight month of price decreases.
The bad news was in the housing sector, where prices have kept upward inflation pressure.
- The shelter index is a huge component. It accounted for over 70% of core CPI's 12-month increase through July, the government said.
- The sector is "solely responsible for core inflation remaining above the Fed's 2% target," Preston Caldwell, senior U.S. economist at Morningstar, wrote Wednesday.
In the CPI report, the rent index rose 0.5%, up from 0.3%. Owner's equivalent rent, which the government uses to account for inflation in homes that people own, rose 0.4% after slowing in June.
The question in recent weeks has been how drastic of a cut the Fed will make after its next policy meeting in September — rather than whether it will do so at all.
- The odds that the Fed would cut by a quarter of a percentage point rose to 54% after the inflation report, according to CME's FedWatch tool.
- As of Tuesday, odds of a half-percentage point cut looked slightly more likely.
The incoming data about the health of the labor market will ultimately determine that call.
- "This is now a labor data-first Fed, not an inflation data-first Fed, and the incoming labor data will determine how aggressively the Fed pulls forward rate cuts," economists at Evercore wrote in a note Wednesday morning.
Year-over-year inflation reached its lowest level in more than three years in July, the latest sign that the worst price spike in four decades is fading and setting up the Federal Reserve for an interest rate cut in September.
Wednesday’s report from the Labor Department showed that consumer prices rose just 0.2% from June to July after dropping slightly the previous month for the first time in four years. Measured from a year earlier, prices rose 2.9%, down from 3% in June. It was the mildest year-over-year inflation figure since March 2021.
The ongoing inflation slowdown could affect the presidential campaign, given that former President Donald Trump has highlighted rampant inflation as a key failing of the Biden administration and its energy policies. Vice President Kamala Harris has said she would soon unveil new proposals to “bring down costs and also strengthen the economy overall.”
The government said nearly all of July’s inflation reflected higher rental prices and other housing costs, a trend that, according to real-time data, is easing. As a result, housing costs should rise more slowly in the coming months, contributing to lower inflation.
In July, grocery prices rose just 0.1% and are a scant 1.1% higher than they were a year earlier, a much slower pace of growth than in previous years. Yet many Americans are still struggling with food prices, which remain 21% above where they were three years ago, though average wages have also sharply increased since then.
Gas prices were unchanged from June to July and have actually fallen 2.2% in the past year. Clothing prices also dropped last month; they’re nearly unchanged from 12 months earlier. New and used car prices fell in July, too. Used car prices, which had skyrocketed during the pandemic, have tumbled nearly 11% in the past year.
Some food prices, including for meat, fish, and eggs, are still increasing faster than before the pandemic. Dairy and fruit and vegetable prices, though, fell in July.
Wednesday’s report showed that inflation is steadily falling closer to the Fed’s 2% target — though not too quickly, which might suggest that the economy is weakening, said Tara Sinclair, an economist at George Washington University and a former Treasury Department official.
“It’s a comforting report, both because it is going in the right direction and because it is not doing anything too dramatic,” Sinclair said. “It is exactly what we wanted to see.”
Austan Goolsbee, president of the Federal Reserve’s Chicago branch, said Wednesday in an interview with The Associated Press that the July data shows that inflation is clearly on track to return to the central bank’s 2% target. He also noted that there are signs that the job market is weakening even while the Fed’s key rate remains at its highest level in decades.
Goolsbee’s remarks suggested that he would support a series of rate cuts in the coming months.
“If you take the last seven months of last year and now the past several months, they show very strong progress on inflation,” he said. “And the employment side is at least cooling. So I think it is worth our thinking about that quite seriously.”
For nearly a year, cooling inflation has provided gradual relief to America’s consumers, who were stung by the price surges that erupted three years ago, particularly for food, gas, rent, and other necessities. Inflation peaked two years ago at 9.1%, the highest level in four decades.
In July, excluding volatile food and energy costs, so-called core prices climbed a mild 0.2% from June, after a 0.1% increase the previous month. And compared with a year earlier, core inflation slowed from 3.3% to 3.2% — the lowest level since April 2021. Core prices are closely watched by economists because they typically provide a better read of where inflation is headed.
Fed Chair Jerome Powell has said he is seeking additional evidence of slowing inflation before the Fed begins cutting its key interest rate. Economists widely expect the Fed’s first rate cut to occur in mid-September.
When the central bank lowers its benchmark rate, over time it tends to reduce the cost of borrowing for consumers and businesses. Mortgage rates have already declined in anticipation of the Fed’s first rate reduction.
Many companies have slowed their price increases as consumers have become more resistant to paying more. Mark Barrocas, CEO of SharkNinja, a small appliance maker in Needham, Massachusetts, said the company raised its prices 5% to 7% in 2021 and 2022 but hasn’t done so since.
Barrocas noted that people are becoming more discerning and are expecting more from the products they buy with prices so much higher than they were a few years ago.
“You really have to think very, very carefully about the long-term effects of raising prices,” he said.
At a news conference last month, Powell said that cooler inflation data this spring had strengthened the Fed’s confidence that price increases are falling back to a 2% annual pace. Another inflation report will be issued next month before the Fed’s Sept. 17-18 meeting, with economists expecting that report to also show that price increases remained mostly tame.
Inflation has eased substantially in the past two years as global supply chains have been repaired, a spate of apartment construction in many large cities has cooled rental costs and higher interest rates have slowed auto sales, forcing dealers to offer better deals to potential car buyers.
Consumers, particularly lower-income ones, are also becoming more price-sensitive, forgoing high-priced items or shifting to cheaper alternatives. This has forced many companies to rein in price hikes or even offer lower prices.
Prices are still rising sharply for some services, including auto insurance and health care. Auto insurance costs have shot up as the value of new and used vehicles has soared compared with three years ago. They jumped 1.2% just from June to July, defying expectations for a smaller gain.
As inflation continues to decline, the Fed is paying increasingly close attention to the job market. The central bank’s goals, as defined by Congress, are to keep prices stable and support maximum employment.
This month, the government reported that hiring slowed much more than expected in July and that the unemployment rate rose for a fourth straight month, though to a still-low 4.3%. The figures roiled financial markets and led many economists to boost their forecasts for interest rate cuts this year.
Most analysts now expect at least three quarter-point rate cuts at the Fed’s September, November, and December meetings.
Still, the rise in the unemployment rate has reflected mainly an influx of job-seekers, especially new immigrants, who haven’t immediately found work and so have been classified as unemployed. That is a much more positive reason for a higher unemployment rate than if it came from a jump in layoffs. Measures of job cuts remain low.
Applications to refinance a mortgage last week soared as Americans caught on to declining rates.Starbucks and Home Depot show consumers are pushed to the limit, strategist says0:01 / 5:39
Mortgage rates fell for a second straight week, spurring a 35% weekly increase in mortgage refinancing applications, according to data from the Mortgage Bankers Association published Wednesday. That’s a whopping 118% rise from a year earlier and the strongest week for refinancing since May 2022.
Almost half of all mortgage applications in the week ended Aug. 9 were to refinance home loans, with the refinance share of mortgage activity rising to 48.6% of total applications from 41.7% the previous week.
Refinancing a mortgage — replacing an existing mortgage with a new one — allows homeowners to take advantage of lower rates or adjust the length of their loan term.
While high mortgage rates over the past couple of years have depressed refinancing activity, the space is starting to see renewed life. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) fell slightly to 6.54% from 6.55% last week. That comes on the heels of a more dramatic drop a week earlier, following the latest U.S. jobs report that showed the economy had cooled considerably.
“Additionally, purchase applications increased by 3%, with small gains seen across the various loan types, indicating that prospective homebuyers are slowly reentering the market,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.
Economic indicators are spurring welcome activity in the housing market, which has been battered by a combination of increasingly unaffordable homes, high mortgage rates, and low inventory. The annual inflation rate rose 2.9% in July, the smallest 12-month increase since March 2021, the Bureau of Labor Statistics reported Wednesday.
Given the slowing inflation and higher unemployment readings of the last couple of months, the Federal Reserve is expected to carry out its first interest rate cut in more than four years in September. Although mortgage rates are not directly tied to interest rates, any cut will likely cause mortgage pricing to continue to decline.
Tom Barkin, president of the Federal Reserve Bank of Richmond, said last week at a conference of business economists that the bargain-hunting consumer is at its limit — and this price sensitivity will help bring down prices.
“While inflation is down, prices are still high, and I think consumers have gotten to the point where they’re just not accepting it,” Barkin said. “And that’s what you want: The solution to high prices is high prices.”
M&M’s maker Mars is buying Kellanova, the maker of Cheez-Its and Pop-Tarts for nearly $30 billion, vastly expanding the number of household-name brands under one roof.
Kellanova was created last year when the Kellogg Co. split into three companies. Kellanova sells many of the former company’s most profitable brands, including Pringles, Eggo, Town House, MorningStar Farms, and Rice Krispies Treats. It had net sales of more than $13 billion last year and has approximately 23,000 employees.
Mars Inc. said Wednesday that it will pay $83.50 per share in cash. The company put the total value of the transaction at $35.9 billion, including debt.
It is the biggest deal in the sector since J.M. Smucker bought Hostess for $5.6 billion last year, and among the largest of 2024, coming in second to Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources.
Mars’ purchase of Kellanova is expected to close in the first half of next year. Once it’s complete, Kellanova will become part of Mars Snacking. Corporate headquarters will remain in Chicago.
Mars, headquartered in McLean, Virginia, is one of the largest privately held companies in the U.S.
“The Kellanova brands significantly expand our snacking platform, allowing us to even more effectively meet consumer needs and drive profitable business growth,” Andrew Clarke, global president of Mars Snacking, said in a statement.
The other company formed in the Kellogg split, WK Kellogg Co., retained cereal brands like Raisin Bran, Frosted Flakes, and Froot Loops, which have struggled with slowing sales in recent years. It is not involved in the deal.
The acquisition would expand Mars’ reach into the salty snack category. The company owns brands like Combos and Uncle Ben’s, but it’s primarily known for its chocolates, candies, and pet food. Mars makes M&M’s, Lifesavers, Juicy Fruit Gum, and Skittles as well as Pedigree and Royal Canin pet foods, among other products.
Sales of some of those products, like gum, have sputtered in recent years as snacking habits shift. The deal helps Mars expand into areas of growth.
It also may help Kellanova at a time when rising prices are squeezing consumers and putting many companies under pressure to put a cap on prices. Economists say that many consumers appear to be returning to pre-pandemic norms when most companies felt they couldn’t raise prices very much without losing business.
Mars got its start in 1911, when founder Frank Mars started making and selling butter cream candy from his home in Tacoma, Washington. The company moved to Chicago in 1929 and introduced the Snickers bar the following year.
Mars has steadily grown through acquisitions. It entered the pet food business in 1935 with the purchase of a U.K. dog food brand and bought the Dove ice cream brand in 1986. In 2008, it purchased the Wrigley chewing gum business for $23 billion.
Shares of Kellanova rose nearly 8% before the opening bell Wednesday.
The number of Americans applying for a mortgage hit its highest level since January 2023 last week, while the number of refinance applications surged to a level not seen since May 2022.
The number of Americans taking out new mortgages is still extremely low — but at least it's growing.
Lower long-term interest rates mean lower mortgage rates and an opportunity for folks who took out expensive mortgages to see a little bit of relief on their monthly payments.
The average new 30-year fixed-rate mortgage is now 6.5%, which is still higher than the overwhelming majority of outstanding mortgages.
- That's depressing both purchases of homes and refinance activity.
Even at its 19-month high of 251, the composite index of mortgage applications remains lower than at any point between January 2000 and September 2022
If you’ve noticed that you’re paying more than before for the same amount of groceries, you’re not the only one. Inflation is easing, but grocery prices are still high — up 21%, on average, since inflation started to surge more than three years ago.
Unlike some other items, you can’t just stop buying groceries when they get pricey. There’s nothing you can do about inflation, but you can find ways to save on groceries so they don’t heavily affect your wallet or your eating habits. These include using coupons, budgeting, and buying in bulk.
Here are some expert recommendations for saving on groceries:
Try coupons
Kiersten Torok started using coupons back when she was in high school after her parents lost their jobs during the 2008 recession. She began relying on them even more in 2020 when she lost her own job during the pandemic. Now she’s using her social media platform to help others learn how to save.
“When times like these come up, coupons are a necessity for so many Americans,” said Torok, known on Instagram and TikTok as Torok Coupon Hunter.
Many might think that using coupons means cutting them out of a magazine. While you can certainly still do that, there are now easier ways to get the discounts. Many stores, like Walmart and Target, have coupons available on their apps.
“All you have to do is scan an item in a store, the coupons pop up on your app and then they automatically apply in the register,” Torok said. “It’s become much more streamlined.”
One of Torok’s coupon golden rules is: Never pay big for toothpaste — there’s always a combination of coupons and offers available. For anyone who wants to try couponing, Torok recommends that you first start using them at your favorite store and never buy things you don’t need, even if there’s a big discount.
Apps like Flipp, which lets you browse for coupons from all major grocery stores, and Ibotta, an app that gives you cashback for using coupons, can make your journey with couponing easier.
Track current spending
Making a budget is a key to keeping grocery spending under control, and the first step is to track how much you’re already spending. Start by reviewing how much you have spent on the last few times you’ve gone grocery shopping, recommended David Brindley, deputy editor for AARP Bulletin.
If you don’t keep receipts from past grocery runs, try looking at your bank account statement and adding up the grocery charges. Once you know how much you spend on groceries, set a goal, for example, staying within a specific budget or reducing your spending.
Review what you already have
You need a plan, but before you make one, ensure you know what you currently have in your fridge and your pantry. Sarah Schweisthal, personal finance expert and social media manager at budgeting app YNAB, recommends taking everything out and making an inventory so you don’t buy duplicates of things you already have on hand.
Brindley also recommends planning to cook multiple meals with similar ingredients, which saves money and also cuts down on food waste.
Make a plan
Once you’ve tracked your spending and inventoried what you already have, the next step is to make a plan. Write down the items you’re looking to buy and your estimated cost, making sure you stay on budget. Meal planning for the week or month can be a good way to stay on top of your spending, Schweisthal said.
Going up and down the aisles can sometimes make you crave things that you haven’t planned for, like a snack or a new dish. If you foresee that it’ll be hard for you to stick to your list, include some flexibility in your plan, such as allotting a specific amount to buy snacks or a random item you see at the checkout line.
“I think having flexibility in a plan actually helps you stick to it more,” Schweisthal said.
Making a plan can be as simple as writing down a list on paper or in your phone’s notes app. Or, you can use apps that specifically help you with meal planning such as AnyList or Mealime.
Shop online
If you tend to wander off your grocery list because every time you go to the store you buy things you don’t need, shopping online and picking up curbside is a good workaround.
“I 100% recommend sitting down Sunday morning and just looking at the stores and comparing the items you need for the week, especially with things you can get for curbside pickup,” Torok said.
If you buy your groceries from multiple stores because each has better prices on some items, ordering ahead of time can also save time.
Involve your family in saving
If you are in charge of buying groceries for your entire family, it can be beneficial to include them in your grocery budgeting routine. For Torok, this has meant teaching her children how to scan coupons while they shop.
Since buying in bulk can be very cost-effective. Brindley also recommends that you team up with a friend or a family member to buy specific items in bulk and share the discount.
Food sharing apps
Lastly, you can save money by using food-sharing apps such as Olio, which connects people around their community to share extra grocery items, and Too Good to Go, where you can buy surplus food at a discount.
The CPI gauges how fast prices are changing across the U.S. economy. It measures everything from fruits and vegetables to haircuts, concert tickets, and household appliances.
“I think it’s right down the strike zone,” Mark Zandi, chief economist of Moody’s, said of the CPI report.
Perhaps the most important thing for consumers is inflation for groceries “continues to grow very slowly,” Zandi said.
Combined with similar good news for other necessities like gasoline and market rents for new tenants, “that’s really encouraging news, particularly for the lower-income consumers that are the most hard-pressed,” he added.