Total CPI inflation continued to slow year-over-year in August (Figure 1), and annual core inflation held at a three-year low. The continued improvement in CPI measures portend further cooling in the Personal Consumption Expenditure (PCE) deflator, the Fed’s preferred inflation gauge.

Trusted Insights for What’s Ahead™

• Today’s CPI inflation data support the Fed’s strong signaling that interest rate cuts will commence at the September 17-18 meeting.
• Other incoming data have been positive on net: real consumer spending was 3 percent annualized higher in July compared to Q2 2024, indicating a strong start to Q3 real GDP growth; while nonfarm payrolls gains were positive in August and the unemployment rate remains low at 4.2 percent.
• Collectively, inflation, labor market, and growth data suggest that the US economy remains healthy and likely not in a recession, hence the Fed can cut by 25bp next week.
• Indeed, interest rate cuts exceeding a quarter percentage point at the September meeting would indicate deeper concerns about the US economy, and/or fears of an impending recession, which is not The Conference Board base case.

Figure 1. Total CPI Inflation continued to slow year-over-year in August

Sources: Bureau of Labor Statistics and The Conference Board.

Report Highlights

Total CPI inflation rose by 0.2 percent month-over-month in August, matching the prior month’s pace. The increase in the index monthly reflected increases in prices for groceries (+0.1 percent), shelter (+0.5 percent), transportation services (+0.9 percent), and educational and communication services (+0.2 percent). Within shelter costs, actual and imputed (owner’s equivalent) rent continued to rise in the month. Among transportation services, airline tickets and car insurance costs increased. Among education services, prices for daycare and business and technical schools rose.

Monthly CPI gains were tempered by a sharp decline in energy prices (-0.8 percent), continued decline in prices for durable goods like cars (-0.3 percent), furniture (-0.3 percent), and recreational (-0.2 percent) goods, and lower prices for nondurable goods like pharmaceuticals (-0.2 percent). Medical services were also cheaper relative to the prior month.

Total CPI slowed to 2.5 percent year-over-year in August from 2.9 percent in July. Core inflation (i.e., total less food and energy prices) was unchanged at 3.2 percent year-over-year – a reading that is the slowest pace of core CPI inflation since May 2021 (Figure 2).

Figure 2. Core CPI Remains at three-year low

Sources: Bureau of Labor Statistics and The Conference Board.

August marked the third month that goods inflation continued to fall on a year-over-year basis. Indeed, goods prices fell by 1.1 percent in August of 2024 compared to the same month last year. Falling energy prices are leading the year-over-year decline, followed by motor vehicles, furniture, and recreational goods (Figure 3). The declines in prices for these goods continues to be offset  in part by continued increases in prices for groceries, tobacco, and medical commodities.

Figure 3. Goods inflation is falling on net compared to a year ago

Sources: Bureau of Labor Statistics and The Conference Board.

Increases in services prices continue to fuel year-over-year CPI inflation. Among services, prices were up 4.8 percent year-over-year in August compared to 4.9 percent in July. Most of the upward pressure on services prices continued to be from shelter costs (Figure 4). After this, prices continued to rise for transportation services, medical care services, food away from home, and energy services in August relative to a year ago. The good news is that past easing in home prices suggest that shelter costs should continue to slow going forward (Figure 5).

Figure 4. CPI services prices still bloated by shelter costs

Sources: Bureau of Labor Statistics and The Conference Board.

Figure 5. Shelter costs poised to continue slowing going forward

Sources: Bureau of Labor Statistics and The Conference Board.