(US) – US inflation, which hit a four-decade peak in June, is on a steady path of deceleration, with predictions of further cooling due to decreasing car prices and rents.
This trend could be further aided if the US job market experiences a slowdown.
While soaring energy costs have driven headline inflation higher, with the latest Consumer Price Index showing a 3.7% annual increase in August compared to 3.2% in July, core inflation (excluding volatile food and energy prices) has slowed to an annual rate of 4.3% in August, down from 4.7% in July.
Economists are now forecasting that inflation will continue to taper off in the coming months, with goods prices showing declining momentum, particularly in used cars and new vehicles.
Factors affecting US inflation
High-interest rates and reduced credit availability have subdued demand in the automotive sector.
The ongoing United Auto Workers’ strike could potentially disrupt this anticipated slowdown in vehicle prices if production is hampered and inventories dwindle.
Shelter costs, a substantial component of the Consumer Price Index, are poised for deceleration in the near future.
Rental costs have been moderating, and the weakening job market and broader economy could further alleviate inflation, particularly in the services sector.
A recent paper from the San Francisco Fed suggests that shelter inflation could turn negative in the latter half of 2024, contributing to the decline in both headline and core inflation.
Despite the expected drop in inflation, financial markets and the Federal Reserve remain more focused on core inflation, with expectations that the Fed will maintain interest rates without imminent cuts.
However, if core inflation exceeds expectations, markets could begin pricing in another rate hike.