Midwest inflation sees a decline in August

FORT WAYNE — Inflation has come down somewhat sharply in the Midwest as it has also across the country, data released Wednesday said.

The post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low, clearing the way for the Federal Reserve to cut interest rates and likely shaping the economic debate in the final weeks of the presidential race, the Associated Press reported.

Wednesday's report from the Labor Department showed that consumer prices rose 2.5% in August from a year earlier, down from 2.9% in July. It was the fifth straight annual drop and the smallest since February 2021. From July to August, prices rose just 0.2%, reported the AP.

Excluding volatile food and energy costs, so-called core prices rose 3.2% in August from a year ago, the same as in July. On a month-to-month basis, core prices rose 0.3%, a slight pickup from July's 0.2% increase. Economists closely watch core prices, which typically provide a better read of future inflation trends, the AP report said.

"Finally seeing some sustained relief on price increases with Midwest prices in August up 2.6% year over year compared to 2.5% nationally. Again, still not at the 2% target but the tools the Federal Reserve has implemented and consumer push back against higher prices is starting to show results," said Rachel Blakeman of the Community Research Institute at Purdue Fort Wayne.

Grocery prices are climbing slower than they have been at 0.7% in the Midwest and 0.9% nationally when comparing prices year over year. That is offset a bit with food away from home — restaurants — at a 3.5% increase regionally and 4% nationally.

Rent costs continue to escalate, with the Midwest showing a 5.8% increase of rent of primary residence compared to 5% nationally. Rent increases only apply to renters, but data indicate they are often the most housing-cost constrained so these increases ripple through households and the larger economy as it affects their ability to purchase other items, necessities or luxuries alike, Blakeman said.

For months, cooling inflation has provided gradual relief to America's consumers, who were stung by the price surges that erupted three years ago, particularly for food, gas, rent and other necessities. Inflation peaked in mid-2022 at 9.1%, the highest rate in four decades, the AP reported.

A rate cut from the Federal Reserve is all but assured this month. It now becomes a question of how much, Blakeman said.

A modest quarter-point cut is widely expected. The pickup in core inflation makes it unlikely that the Fed would consider cutting its key rate by a larger-than-usual half-point next week, as some Wall Street traders had hoped. Stock prices slid as a result, with the broad S&P 500 index falling about 1.6% in mid-morning trading, the AP reported

Over time, a series of Fed rate cuts should reduce the cost of borrowing across the economy, including for mortgages, auto loans and credit cards.