inflation rate decrease/ inflation cooling/ Fed inflation index/ Newslooks/ WASHINGTON? J. Mansour/ Morning Edition/ The Federal Reserve’s preferred inflation gauge dropped to a 3.5-year low, rising only 2.1% year-over-year in September. The report, released five days before the U.S. election, reflects easing inflation, though prices remain significantly higher than four years ago. Economic and policy impacts from the inflation data could influence voter sentiment as November’s election looms.
Inflation Gauge Hits Pre-Pandemic Levels: Quick Look
- Federal Reserve’s preferred inflation measure: Personal Consumption Expenditures (PCE) Price Index shows only a 2.1% rise year-over-year in September, the lowest in 3.5 years.
- Monthly price increase: A modest 0.2% from August to September.
- Economic cooling impact: Inflation moderation comes after pandemic-driven price surges, significant Fed rate hikes, and stabilized supply chains.
- Political context: Inflation remains a key election issue, with differing solutions proposed by candidates. Trump promises an inflation “vanish,” while Harris targets anti-gouging measures.
- Fed’s next steps: Expected to cut rates gradually as economic indicators, including the labor market, remain positive despite signs of slowing.
U.S. Inflation Drops to Pre-Pandemic Levels, Fed Reports
Deep Look
As the U.S. presidential election approaches, a key inflation indicator watched closely by the Federal Reserve has reached its lowest level since early 2021. On Thursday, the Commerce Department reported a 2.1% increase in the Personal Consumption Expenditures (PCE) Price Index for September, down from 2.3% in August. This minimal uptick brings inflation close to the Fed’s 2% target and matches pre-pandemic levels not seen since 2018. Monthly inflation rose a slight 0.2% from August to September, maintaining a slower inflationary pace compared to previous months.
The data presents a snapshot of a steadily cooling inflation landscape—welcome news amid an election where economic sentiment has been dampened by persistently high living costs. Although inflation rates have come down, many prices remain around 20% higher than in 2020. The data is timely, arriving only days before voters head to the polls. As the campaign trail heats up, former President Donald Trump and current Vice President Kamala Harris have proposed markedly different solutions to high prices, drawing sharp contrasts in their economic policy approaches. Trump has pointed to Biden-Harris administration energy policies as inflationary, pledging to eliminate inflation if elected, while Harris has advocated for price-gouging bans in groceries and cost reductions in child care and healthcare.
Economists, however, argue that some of Trump’s policies, such as imposing additional tariffs and restrictive immigration measures, could lead to further inflation. Similarly, experts note that Harris’ proposed anti-price-gouging policies would have limited effect on the long-term inflation outlook.
This latest dip in inflation marks a sustained improvement since the PCE Price Index peaked at 7.1% in June 2022. Back then, the inflation spike followed the rapid post-pandemic economic expansion amid widespread supply and labor shortages. The Federal Reserve has since implemented a series of aggressive rate hikes to curb inflation, bringing rates to their highest level in 40 years. These rate hikes have dampened demand in key areas like housing and automobiles, contributing significantly to the inflation cooldown observed over the past two years.
The PCE index, which the Fed prefers over the more common Consumer Price Index (CPI), takes into account consumer substitutions for less expensive alternatives, offering a broader view of how inflation affects spending. In general, the PCE index reflects lower inflation than the CPI, partly because housing costs—among the largest contributors to inflation in the CPI—hold less weight in the PCE index.
Federal Reserve Chair Jerome Powell expressed increased confidence in August regarding inflation control efforts, noting that slowing hiring in July and August suggests the economy is cooling. This moderation led the Fed to lower its key rate by an outsized half-point last month. Given ongoing inflation reduction, further rate cuts are expected in November and December, possibly in quarter-point increments.
However, the Fed’s rate-cutting trajectory remains uncertain. September’s job growth exceeded expectations, with the unemployment rate dropping to 4.1%, a level considered low. Retail sales have also shown robust growth, and the government’s estimate of a 2.8% annual GDP growth rate for Q3 has fueled speculation that the Fed could either pause or slow down rate cuts in 2024.
As voters consider these economic trends, the final pre-election economic release, October’s jobs report, is due Friday. The report may paint a complex picture of the labor market, as Hurricanes Helene and Milton have temporarily sidelined tens of thousands of workers.
