U.S. Inflation Hits 3.5-Year Low: What Does This Mean for Your Wallet?

Last month, the consumer price index (CPI) in the United States hit its lowest level in three and a half years.

According to reports, the U.S. Department of Labor announced on Wednesday that consumer prices rose by 2.5% compared to the same month last year. This figure matches the expert forecast of 2.6% and marks the lowest since February 2021. The prices increased by 0.2% compared to the previous month.

Housing costs rose by 0.5% from the previous month. However, energy prices fell by 0.8% compared to the previous month and by 4.0% year-over-year, which helped lower overall prices. Core consumer prices increased by 0.3% from the previous month and by 3.2% compared to last year, surpassing market expectations. This excludes data on volatile categories such as energy and food.

As the core inflation rate came in higher than market expectations, the possibility of the Federal Reserve cutting interest rates decreased. Following the CPI announcement, the CME FedWatch tool adjusted the probability of an interest cut from 34% to 17%. The CME calculates the likelihood of rate cuts based on futures market data.

Lael Brainard, Chair of the White House Council of Economic Advisers, stated, “Today’s report shows that we are turning the page on inflation, which has fallen to 2.5%, close to the level the month before the pandemic started. With inflation returning to normal levels, it is important to focus on sustaining our historic gains for American workers during this recovery.”