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(AP) — Inflation in the United States dropped last month to its lowest point since it first began surging more than three years ago, adding to a spate of encouraging economic news in the closing weeks of the presidential race.
Consumer prices rose just 2.4% in September from a year earlier, down from 2.5% in August, and the smallest annual rise since February 2021. Measured from month to month, prices increased 0.2% from August to September, the Labor Department reported Thursday, the same as in the previous month.
But excluding volatile food and energy costs, “core” prices, a gauge of underlying inflation, remained elevated in September, driven up by rising costs for medical care, clothing, auto insurance and airline fares. Core prices in September were up 3.3% from a year earlier and 0.3% from August. Economists closely watch core prices, which typically provide a better hint of future inflation.
Alan Detmeister, an economist at UBS Investment Bank, suggested that some items that contributed to higher core inflation last month, notably used cars, may rise again in the coming months, keeping prices a bit elevated. Other items that rose in price in September, like clothing and air fares, are more volatile and should cool soon.
“Things are still gradually coming down, but there is going to be volatility month to month,” said Detmeister, a former Federal Reserve economist.
Taken as a whole, the September figures show that inflation is steadily easing back to the Fed’s 2% target, even if in an uneven pattern. That decline suggests that the Fed will likely keep cutting its benchmark interest rate this year, with two quarter-point reductions in November and December expected by most economists.
On a positive note, apartment rental prices grew more slowly last month, a sign that housing inflation is finally cooling, a long-awaited development that would provide relief to many consumers.
Omair Sharif, founder of Inflation Insights, said that measures of new rents show a steady slowdown, suggesting that the government’s gauges of rent should continue to ease over time.
“I think we’re on the right path here,” Sharif said. “We should see rent cool off quite a bit.”
Overall inflation last month was held down by a big drop in gas prices, which fell 4.1% from August to September. Grocery prices jumped 0.4% last month, after roughly a year of mild increases, though they’re just 1.3% higher than a year earlier.
Still, food prices have jumped nearly 25% from pre-pandemic levels, which has hammered many Americans’ budgets and taken on a high profile in the presidential campaign. Trump has often cited the cost of bacon, which soared 30% to a peak of $7.60 a pound in October 2022, as an example of the soaring cost of living. Bacon prices have since fallen to $6.95 but are still elevated.
Restaurant food prices increased 0.3% last month and are up 3.9% in the past year. And clothing prices rose 1.1% from August to September and are up 1.8% from a year ago.
The improving inflation picture follows a mostly healthy jobs report released last week, which showed that hiring accelerated in September and that the unemployment rate dropped from 4.2% to 4.1%. The government has also reported that the economy expanded at a solid 3% annual rate in the April-June quarter. Growth likely continued at roughly that pace in the just-completed July-September quarter.
Cooling inflation, solid hiring and healthy growth could erode former President Donald Trump’s advantage on the economy in the presidential campaign as measured by public opinion polls. In some surveys, Vice President Kamala Harris has pulled even with Trump on the issue of who would best handle the economy, after Trump had decisively led President Joe Biden on the issue.
At the same time, most voters still give the economy relatively poor marks, mostly because of the cumulative rise in prices over the past three years.
For the Fed, last week’s much-stronger-than-expected jobs report fueled some concern that the economy might not be cooling enough to slow inflation sufficiently. The central bank reduced its key rate by an outsized half-point last month, its first rate cut of any size in four years. The Fed’s policymakers also signaled that they envisioned two additional quarter-point rate cuts in November and December.
In remarks this week, a slew of Fed officials have said they’re still willing to keep cutting their key rate but at a deliberate pace, a signal that any further half-point cuts are unlikely.
The Fed “should not rush to reduce” its benchmark rate “but rather should proceed gradually,” Lorie Logan president of the Federal Reserve’s Dallas branch, said in a speech Wednesday.
Inflation in the United States and many countries in Europe and Latin America surged in the economic recovery from the pandemic, as COVID closed factories and clogged supply chains. Russia’s invasion of Ukraine worsened energy and food shortages, pushing inflation higher. It peaked at 9.1% in the U.S. in June 2022.
Economists at Goldman Sachs projected earlier this week that core inflation will drop to 3% by December 2024. And few analysts expect inflation to surge again unless conflicts in the Middle East worsen dramatically.
Though higher prices have soured many Americans on the economy, wages and incomes are now rising faster than costs and should make it easier for households to adapt. Last month, the Census Bureau reported that inflation-adjusted median household incomes — the level at which half of households are above and half below — rose 4% in 2023, enough to return incomes back to their pre-pandemic peak.
In response to higher food prices, many consumers have shifted their spending from name brands to private labels or have started shopping more at discount stores. Those changes have put more pressure on packaged foods companies, for example, to slow their price hikes.
This week, PepsiCo reported that its sales volumes fell after it imposed steep price increases on its drinks and snacks.
Millions of Social Security recipients will get a 2.5% cost-of-living increase to their monthly checks beginning in January, the Social Security Administration announced Thursday.
The cost-of-living adjustment, or COLA, for retirees translates to an average increase of more than $50 for retirees every month, agency officials said.
About 72.5 million people, including retirees, disabled people and children, get Social Security benefit.
But even before the announcement, retirees voiced concern that the increase would not be enough to counter rising costs.
Sherri Myers, an 82-year-old retiree from Pensacola City, Florida, is now hoping to get an hourly job at Walmart to help make ends meet.
“I would like to eat good but I can’t. When I’m at the grocery store, I just walk past the vegetables because they are too expensive. I have to be very selective about what I eat — even McDonald’s is expensive,” she said.
Recipients received a 3.2% increase in their benefits in 2024, after a historically large 8.7% benefit increase in 2023, brought on by record 40-year-high inflation.
The smaller increase for 2025 reflects moderating inflation.
Social Security Commissioner Martin O’Malley told The Associated Press that the upcoming increase will provide a measure of relief for recipients as inflation has cooled and the agency serves a record number of retirees while funding is at a historic low.
His message to those who feel that the adjustment is not enough: “They’re not wrong.”
”I’ve heard the stories and it is a struggle for seniors,” he said, adding that “in their older years, they have to spend their money on a different array of costs and expenses, including prescription drugs.”
He said policies advanced by the Biden-Harris administration should result in many people seeing lower prescription drug costs.
The agency will begin notifying recipients about their new benefit amount by mail starting in early December. Adjusted payments to nearly 7.5 million people receiving Supplemental Security Income will begin on December 31.
The program is financed by payroll taxes collected from workers and their employers and that is slated to increase to $176,100. The maximum amount of earnings subject to Social Security payroll taxes was $168,600 for 2024, up from $160,200 in 2023.
The announcement comes as the national social insurance plan faces a severe financial shortfall in the coming years.
The annual Social Security and Medicare trustees report released in May said the program’s trust fund will be unable to pay full benefits beginning in 2035. If the trust fund is depleted, the government will be able to pay only 83% of scheduled benefits, the report said.
AARP CEO Jo Ann Jenkins said in a statement that “there is more we must do to ensure older Americans can continue to count on Social Security. AARP continues to call on Congress to take bipartisan action to strengthen Social Security and secure a long-term solution that Americans can rely on.”
The presidential candidates, Democrat Kamala Harris and Republican Donald Trump, have presented dueling plans on how they would strengthen Social Security.
AARP conducted interviews with both Harris and Trump in late August and asked how the candidates would protect the Social Security Trust Fund.
Harris said she would make up for the shortfall by “making billionaires and big corporations pay their fair share in taxes and use that money to protect and strengthen Social Security for the long haul.”
Trump said “we’ll protect it with growth. I don’t want to do anything having to do with increasing age. I won’t do that. As you know, I was there for four years and never even thought about doing it. I’m going to do nothing to Social Security.”
O’Malley said there is a push for the Social Security Administration to use a different index to calculate the cost-of-living increase that measures price changes based on the spending patterns of older people on things such as health care, food and medicine costs.
The COLA is now calculated according to the Consumer Price Index, a market basket of consumer goods and services. O’Malley said lawmakers who are advocating for a shift “are advancing a very sound policy.”
The number of Americans filing for unemployment benefits last week jumped to its highest level in a year, which analysts are saying is more likely a result of Hurricane Helene — and the Boeing machinist strike — than a broader softening in the labor market.
The Labor Department reported Thursday that applications for jobless claims jumped by by 33,000 to 258,000 for the week of Oct. 3. That’s the most since Aug. 5, 2023 and well above the 229,000 analysts were expecting.
Analysts highlighted big jumps in jobless benefit applications last week across states that were most affected by Hurricane Helene, including Florida, North Carolina, South Carolina and Tennessee.
“Claims will likely continue to be elevated in states affected by Helene and Hurricane Milton as well as the Boeing strike until it is resolved,” said Nancy Vanden Houten, lead U.S. economist of Oxford Economics. “We think, though, that the Fed will view these impacts as temporary and still expect it to lower rates by (25 basis points) at the November meeting.”
Venden Houten said that Washington state was the most impacted by the Boeing strike and accounted for a disproportionate share of the increase.
Applications for jobless benefits are widely considered representative of U.S. layoffs in a given week, however they can be volatile and prone to revision.
The four-week average of claims, which evens out some of that weekly volatility, rose by 6,750 to 231,000.
The total number of Americans collecting jobless benefits rose by 42,000 to about 1.86 million for the week of Sept. 28, the most since late July.
Outside of the weather and labor strife, some recent labor market data has suggested that high interest rates may finally be taking a toll on the labor market.
In response to weakening employment data and receding consumer prices, the Federal Reserve last month cut its benchmark interest rate by a half of a percentage point as the central bank shifted its focus from taming inflation toward supporting the job market. The Fed’s goal is to achieve a rare “soft landing,” whereby it brings down inflation without causing a recession.
It was the Fed’s first rate cut in four years after a series of rate hikes in 2022 and 2023 pushed the federal funds rate to a two-decade high of 5.3%.
Inflation has retreated steadily, approaching the Fed’s 2% target and leading Chair Jerome Powell to declare recently that it was largely under control.
In a separate report Thursday, the government reported that U.S. inflation reached its lowest point since February 2021.
During the first four months of 2024, applications for jobless benefits averaged just 213,000 a week before rising in May. They hit 250,000 in late July, supporting the notion that high interest rates were finally cooling a red-hot U.S. job market.
In August, the Labor Department reported that the U.S. economy added 818,000 fewer jobs from April 2023 through March this year than were originally reported. The revised total was also considered evidence that the job market has been slowing steadily, compelling the Fed to start cutting interest rates.
Despite some signs of labor market slowing, America’s employers added a surprisingly strong 254,000 jobs in September, easing some concerns about a weakening job market and suggesting that the pace of hiring is still solid enough to support a growing economy.
Last month’s gain was far more than economists had expected, and it was up sharply from the 159,000 jobs that were added in August. After rising for most of 2024, the unemployment rate dropped for a second straight month, from 4.2% in August to 4.1% in September.