The Consumer Price Index (CPI) rose 0.2 percentage points in August, slowing to a 2.5 percent year-on-year increase from July's 2.9 percent increase.
The rate of decline was less than expected as prices fell more than expected.
The “core” CPI, which excludes volatile food and energy prices, was stable from July to August at 3.2% year-on-year.
“While headline CPI rose just 2.5% year-over-year, the slowest increase in nearly three-and-a-half years, it's still good news for the fight against inflation, especially for households,” Sonu Varghese, a strategist at Nebraska-based Carson Group, said in a statement.
Rigidity in core markets was a concern for many commentators on Wednesday morning, who pointed to pricing pressures in home, transport and auto insurance.
“This serves as a warning against getting too excited about the past few months of improving inflation data,” Brian Coulton, chief economist at Fitch Ratings, said in a statement.
Coulton said core intransigence would not be enough to cause the Fed to pause its planned rate cuts this month, but he expected pressure from services inflation to slow the pace of cuts.
“Services inflation remains robust at around 5 percent year-on-year, which is likely one reason why the Fed will not cut rates at an aggressive pace over the next year or so,” he said.
Bankrate financial analyst Greg McBride also looked at home and auto insurance.
“Despite the once-again consistency of improving inflation, another consistency is that the cost of housing and auto insurance continues to rise at an extraordinary pace on a monthly and annual basis,” he wrote. “Rent has risen 5% over the past year, outpacing the growth of average hourly wages.”
Despite concerns about underlying inflation in the economy, the Labor Department's Consumer Price Index (CPI) report released Wednesday was a positive for consumers, with prices of major household expenses such as food and energy falling.
Food prices rose just 0.1% from the previous month and are up 2.1% for the year. Food prices were flat from the previous month and up just 0.9% from a year ago.
Energy prices have fallen significantly, dropping 4% since August 2023. Gasoline has fallen 10.3% over the past year.
Roadside assistance provider AAA recorded another big drop in gas prices, with the national average price for a gallon of gas falling to $3.25 from $3.83 last year.
Updated 9:29 a.m.
