The Labor Department reported that the Consumer Price Index (CPI), a key measure of inflation, rose 2.7% in August from a year earlier, holding steady from the annual rate seen in July. On a month-over-month basis, the index edged up just 0.1%, a slowdown from the 0.2% increase seen previously.
More importantly for policymakers, core CPI, which strips out volatile food and energy prices, showed a more pronounced deceleration. The core index rose 3.0% year-over-year, ticking down from 3.1% in July and marking the slowest annual increase in over a year. The monthly core increase was a modest 0.1%.
The data suggests that the Federal Reserve's aggressive campaign of monetary tightening is continuing to have its desired effect of taming price pressures across the economy.
Green Light for a Fed Pause
The report landed as Fed officials enter their quiet period ahead of their next Federal Open Market Committee (FOMC) meeting. The slight but noticeable cooling in underlying inflation is expected to give policymakers the confidence to hold the federal funds rate at its current level to further assess the economic impact of previous hikes.
"This CPI print is exactly what the Federal Reserve was hoping for," commented a chief U.S. economist at a major financial institution. "It provides a clear signal that inflation is on a sustained downward path, giving them the justification to pause and adopt a data-dependent, 'wait-and-see' approach. A rate hike at the next meeting is now very unlikely."
While headline inflation was held steady by stable energy prices, the slowdown in the core figure was seen as a particularly positive development, indicating that underlying price pressures in the services sector are beginning to ease.
Wall Street Opens Higher in Relief Rally
Financial markets, which had been anxiously awaiting the inflation data, reacted positively to the news. U.S. stock markets opened firmly in the green as the report eased fears of further aggressive action from the Fed.
In early trading on Wednesday:
The Dow Jones Industrial Average added approximately 180 points, or 0.4%.
The S&P 500 gained 0.6%.
The tech-heavy Nasdaq Composite led the gains, rising by 0.8%.
The positive sentiment reflects investor relief that the threat of additional monetary tightening, which could stifle economic growth, has diminished. The focus now shifts entirely to the Fed's upcoming meeting, where the official statement and the subsequent press conference will be scrutinized for any signals regarding the central bank's policy path for the final quarter of the year.
