Inflation falls below 3% for first time since 2021

Shoppers at the Lincoln Road outdoor mall in Miami Beach, Fla., on Feb. 21, 2024. The consumer price index cooled in July compared with a year earlier, providing further evidence that inflation is moderating. (Scott McIntyre/The New York Times)

By Jeanna Smialek

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% in July on a yearly basis, the Bureau of Labor Statistics reported, easing slightly from 3% in June. The figure was milder than economists had expected, and it marked the first time inflation has slipped below 3% since 2021.

While inflation still exceeds the 2% that was normal before the coronavirus pandemic, it is much slower than the 9.1% peak in 2022.

And after stripping out food and fuel prices, a closely watched “core” index climbed 3.2% 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:

— On a monthly basis, inflation was in line with economists’ expectations and slightly warmer than last month.

— The Fed has held interest rates at a relatively high 5.3% for the past year. Investors think 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 a large cut.

— Wall Street has been on edge heading into the inflation report, after sharp stock swings this month reignited fears over the economy’s direction.

— As Fed officials try to figure out what comes next with the economy, company earnings reports could give a real-time snapshot. Executives at Home Depot recently told investors that they were watching shoppers pull back among “greater macroeconomic uncertainty,” and hotel operator Marriott reported “a hair more caution” among travelers. Meantime, clothier Ralph Lauren saw “good relative momentum” in more well-to-do customers.

— Fed policymakers aim for 2% annual inflation based on the personal consumption expenditures inflation measure, their preferred inflation gauge, which comes out later than the consumer price index. That data for July will be released Aug. 30.