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US inflation fell further last month as Fed to cut rates

AP – Inflation in the United States (US) may have hit a three-year low in August, underscoring that the rate of price increases is falling back to pre-pandemic levels and clearing the way for the Federal Reserve (Fed) to start cutting its key interest rate next week.

Year-over-year inflation is thought to have slowed to 2.6 per cent last month, according to a survey of economists by the data provider FactSet.

That would be the lowest such rate since March 2021. And excluding volatile food and energy prices, core inflation is believed to have remained unchanged at 3.2 per cent.

Inflation peaked at 9.1 per cent in June 2022 – a four-decade high – as the economy rebounded from the pandemic recession with unexpected speed and strength.

The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and making loans much more expensive across the economy.

Shoppers at a Costco warehouse in Colorado, United States. PHOTO: AP

The latest inflation figures could inject themselves into the presidential race in its final weeks. Former President Donald Trump has heaped blame on Vice President Kamala Harris for the jump in inflation, which erupted in early 2021 as global supply chains seized up, causing severe shortages of parts and labour.

Harris has proposed subsidies for home buyers and builders in an effort to ease housing costs and supports a federal ban on price-gouging for groceries.

Trump has said he would boost energy production to try to reduce overall inflation. Fed officials have signalled that they’re increasingly confident that inflation is steadily falling back to their two per cent target and are now shifting their focus to supporting the job market, which is rapidly cooling.

The Fed’s mandate is to seek stable prices and maximum employment.

Reductions in the Fed’s benchmark rate should, over time, reduce the cost of consumer and business borrowing, including for mortgages, auto loans and credit cards.

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