US inflation falls to 2.5% in August

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US inflation fell to 2.5 per cent in August, setting the stage for the Federal Reserve to start cutting interest rates at its meeting next week.

The latest annual consumer price index compared with July’s 2.9 per cent pace, and was marginally below the estimate of 2.6 per cent from economists polled by Reuters.

Core CPI, which excludes volatile food and energy prices held steady at 3.2 per cent, according to data published by the Bureau of Labor Statistics on Wednesday.

The inflation data marks one of the last major economic releases ahead of the Fed’s next meeting on September 18, when it is expected to lower rates from their current range of 5.25 to 5.5 per cent, a 23-year high.

After the data release, the yield on two-year Treasury bonds, which tracks interest rate expectations and moves inversely to price, rose 0.08 percentage points to 3.69 per cent.

Contracts tracking the S&P 500 share index were down 0.5 per cent in the immediate aftermath of the publication of the inflation figures, while those tracking the technology-heavy Nasdaq 100 also lost 0.5 per cent.

Last month, a weak payrolls report for July had sparked fears of an economic downturn in the US.

The data for August, released last Friday, showed that US employers had added 142,000 new jobs that month, up sharply from a downwardly revised figure of just 89,000 for July, but still below consensus forecasts.

The Fed has been seeking assurance that inflation is cooling sustainably before lowering interest rates. But evidence of sharper deterioration in the jobs market could push the central bank to cut rates more aggressively.

Evidence that inflation is continuing to fall towards its 2 per cent target is welcome news for the White House and Democratic vice-president Kamala Harris’s election campaign. Her Republican rival Donald Trump has attacked her and President Joe Biden for presiding over a cost-of-living crisis in recent years.